The High Cost 
Of Living 





KARL KAUTSKY 





Class _: 
Book__ 



x)pyrightN"_ 



COPYRIGHT DEPOSrc 



THE HIGH COST OF LIVING 



THE 

HIGH COST OF LIVING 

CHANGES IN GOLD-PRODUCTION 
AND THE RISE IN PRICES 



BY 
KARL KAUTSKY 



TRANSLATED BY 

AUSTIN LEWIS 



CHICAGO 

CHARLES H. KERR & COMPANY 

1914 



.K3 



Copyright, 1913 
By CHARLES H. KERR & COMPANY 



JOHN 


F. 


HIGGINS 1 


PRINTER AND BINDER 1 


^ 


S 


^80 


376-382 


MONROE STREET 1 


CHICAGO, 


ILLINOIS 1 



... ^- 

©Ci,A358581 



TRANSLATOR'S INTRODUCTION 

The following is Kautsky's cliief contribu- 
tion to a much discussed matter. The whole 
question of prices is very vexed, for, as Kaut- 
sky says : " It is no mere academic question, 
since anticipations as to the continuance of the 
rise in prices, as well as the operation of their 
causes, are very evidently dependent upon the 
point of view as to the reason of the rise in 
prices." 

We find everywhere, moreover, approxi- 
mately the same differences of opinion which 
causes Kautsky to attack the conclusions of 
Varga. In England, for example, Professor 
Hobson has recently published a work entitled 
" Gold, Prices and Wages." His thesis is that 
the recent increase in the supply of gold is not 
the main reason of the rise in prices ; in fact, 
he is doubtful if it is a contributory reason. 
He attacks the idea that gold is the basis of 
credit and industry. He asserts that credit 
is not based upon gold but upon goods. Pro- 
fessor Hobson incidentally makes an attack 
upon Professor Ashley's statement that " the 
most direct and immediate way in which an in- 
flux of gold aff^ects trade is by causing the 

banks to make advances on easier terms, so 

5 



6 TRANSLATOR'S INTRODUCTION 

stimulating enterprise and causing an increase 
in the demand for commodities and services, 
and consequently a rise in prices." 

The work of Professor Hobson was subjected 
to a very clever and searching criticism in the 
New Age (London), May 15, 1913, from which 
we take the following extracts as being clearly 
to the point in this controversy. It will be 
noted that thej^ tend very strongly to support 
the position taken by Kautsky: 

If Professor Hobson had been at all familiar with 
banking methods he would have known that bills and 
' vendible goods are accepted as banking security only 
because they are believed to be readily exchangeable for 
gold. Everyone knows that bankers grade collateral, 
from what are known as ' gilt-edge ' securities, down- 
wards, depending upon their convertibility; and bills and 
goods not readily convertible are ruled out. 

" Sir Edward Holden probably knows as much about 
bank credit as any living man. In his address to the 
Liverpool Bankers' Institute in 190T he said: 'You here 
see the direct connection between trade on the one hand 
and gold on the other, and that it is not so much the pro- 
duction of gold, as the amount of gold, which can be 
obtained for the purpose of increasing bankers' reserves. 
I venture to think that the above explanation will enable 
you to come to the conclusion that if the gold base of the 
triangle cannot be increased, then the danger spot is the 
loan. 

" ' I w ant you to remember that the banking system 
based on country has its triangle, and that the principles 
enunciated above exist in every triangle of every banking 
system based on gold in the world. That being so, it is 
clear, generally speaking, that the business of the world 
is carried on by means of loans, that loans create credits, 
that the stand-by for the protection of the credits is 
gold, and that therefore gold controls trade.' 



TRANSLATOR'S INTRODUCTION 7 

"What has recently happened is this. The great in- 
crease in the gold supplies has enabled bankers to give 
credit facilities to a much larger class than heretofore, 
and to accept securities which formerly were inadmissible. 
It is not merely an increase in the bank reserves which 
enables them to do this, but the knowledge that there 
exists a much greater volume of gold which would be 
forthcoming, if these securities had to be sold. The more 
gold there is available the more readily can goods and 
securities be exchanged, and hence the safer they become 
as banking security for loans. 

"Professor Ashley's statement is quite correct. If 
I can now borrow on goods which formerly were regarded 
as insecure, it is correct to say that credit can now be 
obtained on ' easier ' terms." It is quite safe to say that, 
but for the great increase in the gold supplies, there 
would have been no such increase in credit facilities as 
we have witnessed, and hence no corresponding advance 
in prices. 

Irving Fisher, Professor of Political Econ- 
omy at Yale, in the Review of Reviews for Feb- 
ruary, 1910, says: 

" Have not short crops, inventions, labor unions, trusts, 
and numerous other conditions some effect, not only on 
particular prices, but on the general level of prices? To 
this question an affirmative answer may be made without 
surrendering the proposition, that the only influences af- 
fecting the price level are three: Currency, its velocity 
and business volume, for all other causes produce their 
effects through these three. Short crops will decrease 
and inventions increase the volume of business. Inven- 
tions affording more rapid transportation and communi- 
cation tend to increase the velocity of circulation of 
money and checks. Inventions in metallurgy tend to in- 
crease the volume of credit substitutes for money. The 
substitution of corporations for partnerships, by increas- 
ing the volume of stocks and bonds which can be used as 
collateral securities for loans, likewise tend to increase 



8 TRANSLATOR'S INTRODUCTION 

bank deposits based on these loans; and bank deposits 
are the chief substitute for money. 

" Similarly labor unions and trusts, if they actually 
restrain trade in the aggregate, will tend to increase the 
price level. This effect, however, is of quite a different 
kind from a direct raising of particular prices. From 
no point of view can the conclusion be justified that the 
main cause of the present rise in cost of living is due 
to labor unions. This rise in cost is world-wide, being 
felt in Europe and India, where American labor unions 
and labor leaders cannot, by the utmost stretch of im- 
agination, be supposed to dominate tlie situation. More- 
over, so far as American statistics show, such as those 
of Bradstreet and the Department of Commerce and 
Labor, wages have risen only about half as fast as the 
cost of living. If it were true that the increasing de- 
mands of labor unions, by increasing the cost of produc- 
ing commodities, had resulted in a general increase of 
prices, these would surely have risen more slowly than 
wages. The facts, however, show that the cost of living 
has increased about twice as fast as wages, and this seems 
to be approximately the rule during any period of rising 
prices. In other words, during rising prices the laborer 
is the loser. In fact, his strikes and insistent demands 
for higher wages represent a belated attempt to overtake 
the advancing cost of living. Labor disputes and de- 
mands are thus an almost invariable accompaniment of 
rising prices, but they are effects of rising prices, not 
causes." 

The interesting point In all the above is that 
the much abused and ridiculed Marxian labor 
theory of value is again forcing itself upon the 
notice of the professional economists. 

Alexander Noyes, writing in the Atlantic 
Monthly of October, 1907, says: 

" If, however, inflation of prices in every market, ab- 
sorption of capital on a scale of unthinking recklessness,^ 



TRANSLATOR'S INTRODUCTION 9 

the use of ill-secured credit to make good deficiencies in 
the supply of ready capital, are resumed on the scale of 
the past few years, it is highly probable that not even 
constantly increasing gold production will save the mar- 
kets which have indulged in such excess from a complete 
and prolonged collapse. The strain upon capital and 
credit may be eased sufficiently to restore equilibrium in 
financial and commercial markets; but if the strain con- 
tinues beyond a certain point, a breakdown of credit 
foliov/s, and with it forced liquidation of the whole posi- 
tion on which the existing level of prices was built up. 
This was the history of the periods immediately preceding 
1857 and 1873." 

It will be noted that there Is much similarity 
between the conclusions here set forth and those 
of Kautsky, the latter maintaining that to keep 
the ball rolling, more and evejn greater quanti- 
ties of gold must be produced, not only actu- 
ally but relatively to the volume of trade. Un- 
less these quantities are produced the movement 
slows down, credits break, the inevitable crash 
takes place. 

In the present Instance, as Kautsky points 
out, recovery is bound to be harder, and the 
effects upon the working class more severe, be- 
cause of the high prices Reached by agricultural 
products, etc. The secondary factors tending 
to a rise in prices make themselves more con- 
spicuously felt. Under these circumstances, 
as Kautsky says, the rise in prices completely 
changes its character. " As long as the Influ- 
ence of Increased production brought with it 
increased demand it was welcomed as an ac- 
companying phenomenon of growing prosper- 



10 TRANSLATOR'S INTRODUCTION 

ity. Since the flow of increased gold produc- 
tion has receded and the other factors of in- 
crease in prices are still existent and all to- 
gether have not had the effect of increasing de- 
mand but of diminishing supply, this increase 
takes on a more disturbing character. From 
a phenomenon accompanying prosperity it be- 
comes a cause of growing misery, and no longer 
of mere social relative misery, increased ex- 
ploitation, but of absolute physical misery." 

And that prices do rise and continue to rise 
we have undoubted proof. 

The " Bulletin of the U. S. Bureau of Labor 
Statistics" No. 114, dated April 4th, 1913, 
says, in the general summary with which it in- 
troduces the volume: 

" Wholesale prices in 1919 advanced sharply during the 
first five months, and a strong upward tendency was 
maintained to the end of the year. The most important 
features in the movement of prices during the year was 
the marked increase in the great groups of farm prod- 
ucts, food, fuel and lighting, metal and implements. 

" The average of wholesale prices in 1915, as measured 
by the prices of ^255 commodities, was 3.4 per cent, higher 
than the average for 1911, and with this advance the level 
was 1.5 per cent, above the high average of 1910 prices. 
Wholesale prices during 1915 were 18.3 per cent, higher 
than in 1890; 50.9 per cent, higher than in 1900; 48.9 per 
cent, higher than in 1897, the year of low^est prices in the 
53-year period from 1890 to 1915; and 33.6 per cent, 
higher than the average price for the 10 years 1890 to 
1899. 

"The upward movement of prices which began July, 
1905, reached its highest point in 1907 in October, from 
which month there was a general decline until August, 



TRANSLATOR'S INTRODUCTION 11 

1908. Beginning with September, 1908, wholesale prices 
increased without a break in any month up to March, 
191G; from this time to December, 1910, prices declined 
slightly. Prices in January, 1911, showed a slight de- 
cline from those of December, 1910, but through the year 
1911 the fluctuation from month to month was small. 
During the first months of 1912 prices rose rapidly until 
May, when slight recessions occurred during June and 
August. In September and October prices were again 
higher, reaching the level of May in November, with a 
loss in December, 1912, of less than one-fourth of 1 per 
cent. 

"Wholesale prices in May and November, 1912, were 
higher than at any other time in the 23-year period from 
1890 to 1912, being 18.5 per cent, higher than in July, 
1905; 3.4 per cent, higher than in October, 1907; 11.5 per 
cent, higher than in August, 1908, and 1.2 per cent, higher 
than in March, 1910. Wholesale prices in December, 
1912, were 12.8 per cent, higher than in December, 1905; 
3.6 per cent, higher than in December, 1910, and 4.6 per 
cent, higher than in December, 1911. 

"Wholesale prices for 1912, as stated above, were 
higher than for any other year of the 23-year period, 1890 
to 1912, covered by the Bureau of Labor Statistics price 
reports, and they were also higher than for any year since 
1883." 

The following table, taken from the same re- 
port, shows the Relative Prices of Commodities 
by Groups (1890-1912), and January to De- 
cember. 1912: 



12 TRANSLATOR'S INTRODUCTION 



(AVERAGE PRICE FROM 1890-1899, 100.0) 



Year 



1890. . . . 

1891 . . . 

1892 . . . 

1893 

1894 . . . 

1895 

1896 

1897 . . . 

1898 . . . 

1899 

1900 

1901 

1902 

1903 . . . 

1904 

1905 

1906 

1907 . . . 

1908 

1909 

1910 

1911 

1912 

1912. 

Jan. . . . , 

Feb. 

Mar. ... 

Apr , 

May . . . , 
June ... 
July . . . 

Aug 

Sept 

Oct , 

Nov 

Dec 



^ ft 



110. 
121. 
111. 
107. 

95. 

93. 

78. 

85, 

96. 
100. 
109. 
116. 
130. 
118. 
126. 
124. 
123. 
137. 
133. 
153. 
164. 
162. 
171. 



171.6 
171.7 
179.8 
189.0 
189.8 
176.6 
171.3 
164.1 
166.3 
164.7 
158.6 
157.8 



112.4 

115.7 

103.6 

110.2 

99.8 

94.6 

83.8 

87.7 

94.4 

98.3 

104.2 

105.9 

111.3 

107.1 

107.2 

108.7 

112.6 

117.8 

120.6 

124.7 

128.7 

131.3 

139.5 



140.7 
140.3 
142.3 
146.5 
144.7 
143.2 
142.0 
138.4 
138.6 
138.7 
138.5 
135.6 



XT. fl 






113.5 

111.3 

109.0 

107.2 

96.1 

92.7 

91.3 

91.1 

93.4 

96.7 

106.8 

101.0 

102.0 

106.6 

109.8 

112.0 

120.0 

126.7 

116.9 

119.6 

123.7 

119.6 

120.7 



115.3 
115.7 
117.4 
119.1 
120.4 
121.1 
121.7 
122.6 
123.1 
123.4 
123.8 
125,0 






104.7 
102.7 
101.1 
100.0 
92.4 
98.1 
104.3 
96.4 
95.4 
105.0 
120.9 
119.5 
134.3 
149.3 
132.6 
128.8 
131.9 
135.0 
130.8 
129.3 
125.4 
122.4 
133.9 



125.8 
128.4 
128.7 
133.6 
134.0 
132.4 
133.5 
133.0 
133.6 
136.8 
142.2 
144.8 



r3 w 



119.2 

111.7 

106.0 

100.7 

90.7 

92.0 

93.7 

86.6 

86.4 

114.7 

120.5 

111.9 

117.2 

117.6 

109.6 

122.5 

125.2 

143.4 

125.4 

124.8 

128.5 

119.4 

126.1 



121.0 
121.0 
121.4 
122.5 
123.4 
124.2 
125.8 
126.9 
128.9 
131.9 
132.8 
132.8 



TRANSLATOR'S INTRODUCTION 13 

(AVERAGE PRICE FROM 1890-1899, 100.0) 



Year 



1890 . . . 

1891 . . . 

1892 . . . 

1893 . . . 

1894 . . . 

1895 . . . 

1896 . . . 

1897 . . . 

1898 . . . 

1899 . . . 

1900 . . . 

1901 . . . 

1902 . . . 

1903 . . . 

1904 . . . 

1905 . . . 

1906 . . . 

1907 . . . 

1908 . . . 

1909 . . . 

1910 . . . 

1911 ... 

1912 . . . 

1912. 

Jan 

Feb 

Mar. ... 

Apr 

May .... 
June . . . 
July . . . 
Aug. . . . 
Sept. . . . 

Oct 

Nov 

Dec 





'^ - 


tJD 




'r:i xn 


s^ 


C3 




M Lumber 
\L and bui] 
b material 




House 

furnishi 

goods 


1 ^ 

To 
%3. 


110.2 


111.1 


110.3 


108.4 


103.6 


110.2 


109.4 


102.8 


102.9 


106.5 


106.2 


101.94 


100.5 


104.9 


105.9 


96.3 


89.8 


100.1 


99.8 


94.1 


87.9 


96.5 


94.5 


93.4 


92.6 


94.0 


91.4 


90.4 


94.4 


89.8 


92.1 


95.8 


106.6 


92.0 


92.4 


105.8 


111.3 


95.1 


97.7 


115.7 


115.7 


106.1 


109.8 


116.7 


115.2 


110.9 


107.4 


118.8 


114.2 


112.2 


114.1 


121.4 


112.6 


113.0 


113.6 


122.7 


110.0 


111.7 


111.7 


127.7 


109.1 


109.1 


112.8 


140.1 


101.2 


111.0 


121.1 


146.9 


109.6 


118.5 


127.1 


133.1 


110.4 


114.0 


119.9 


138.4 


112.4 


111.7 


125.9 


153.2 


117.0 


111.6 


133.1 


151.4 


120.3 


111.1 


131.2 


148.2 


122.9 


113.7 


133.2 


145.1 


121.8 


113.0 


127.8 


144.3 


121.8 


113.0 


129.9 


145.0 


121.5 


113.4 


132.7 


146.0 


118.4 


113.6 


134.3 


146.6 


123.4 


113.6 


136.6 


146.8 


122.7 


113.6 


134.5 


149.5 


123.1 


113.6 


132.3 


150.4 


122.5 


113.6 


132.3 


152.1 


125.5 


113.6 


133.8 


150.7 


125.6 


113.6 


134.4 


151.0 


125.3 


114.4 


135.1 


150.5 


124.1 


114.4 


134.8 



5^ 



112.9 

111.7 

106.1 

105.6 

96.1 

93.6 

90.4 

89.7 

93.4 

101.7 

110.5 

108.5 

112.9 

113.6 

113.0 

115.9 

122.5 

129.5 

122.8 

126.5 

131.6 

129.2 

133.6 



130.5 
130.7 
132.3 
134.8 
135.4 
134.3 
134.4 
133.7 
134.7 
135.2 
135.4 
135.1 



The " Bulletin of the United States Bureau 
of Labor Statistics " Number 115, April Sth, 
1913, is a study of the variations in the retail 
prices of fifteen staple commodities, as follows: 



14 TRANSLATOR'S INTRODUCTION 

Sirloin steak; round steak; rib steak; pork 
chops ; bacon, smoked ; ham, smoked ; lard, pure ; 
flour; wheat; corn meal; eggs, strictly fresh; 
butter, creamery ; potatoes, Irish ; sugar, gran- 
ulated ; milk, fresh. 

A table giving the relative retail prices of 
the foregoing articles of food from 1890 to Feb- 
ruary, 1913, yields the following general re- 
sults according to the table in question : 

"In 1891 prices advanced to 103.4; in 1893 there was 
a slight decline to 101.6; in 1893 an advance to 104.1. 
After this there was a gradual decline until the lowest 
price (95.2) in the 53 years and 3 months covered by 
this report was reached in 1896. From that time each 
year showed an advance until 144.1 was reached in 1910. 
The price (143.0) in 1911 showed a slight decline from 
1910, but the price (154.2) in 1912 was far above that 
of any other year during the 23-year period. The 
monthly relative price in January, 1911, was 145.0. There 
was a decline until 135.3 was reached in April; then an 
advance each month until January, 1912, when the rela- 
tive price was 153.5; a decline during each of the next 
two months; then an advance until 154.6 was reached in 
May; then a slight decline to 154.1 in June, a further 
decline to 151.8 in July, then an advance each month to 
159.3 in November, and then a decline each month to 
155.8 in February, 1913." 

A table showing the per cent, of increase or 
decrease in wholesale prices, comparing the av- 
erage for 1912 with the average for each of the 
preceding twenty-two years, gives the following 
general results: 

" The greatest advance in any group was in farm pro- 
ducts, in which the price in 1912 was 118.8 per cent. 



TRANSLATOR'S INTRODUCTION 15 

higher than the 1896 price, making the price in 1913 more 
than twice that in 1896. This group was 5.7 per cent, 
higher than in 1911. Food, etc., in the year 1912, was 
66.5 per cent, higher than in 1896, and 6.2 per cent, 
higher than the average price for 1911. The cloths and 
clothing group in 1913 was 33.5 per cent, higher than in 
1897, 0.9 per cent, higher than in 1911, and 3.4 per cent, 
lower than in 1910." 

No comment is made upon the foregoing fig- 
ures by the translator because no comment is 
necessary. They show only too clearly the act- 
ual deterioration in wages as regards purchas- 
ing power. Relatively we have lost ground, 
and when the time of stress due to what Kaut- 
sky regards as the inevitable stagnation comes, 
the suffering will be all the more intense and 
the feelings of class antagonism all the more 
acute. 

Kautsky looks optimistically into the future, 
well satisfied with the work done in the past. 
He says of the German worker: " He may con- 
fidently enter upon the conflict which the new 
era of capitalism has for us." Such confidence 
can only spring from the possession of a strong 
organization and widespread education in So- 
cialist theory. Such are the essentials of ad- 
vance in this country as well as in Germany. 
Organization and education are still the master 
words. 



CONTENTS 

PAGE 

I Simple Production of Commodities . 17 

II Capitalistic Method of Production . 88 

III The Circulation of Money ... 61 

IV Increase in Prices and Poverty . 88 



16 



THE HIGH COST OF 
LIVING 

CHANGES IN GOLD-PRODUCTION AND 
THE RISE IN PRICES 

I 

SIMPLE PRODUCTION OF COMMODITIES 

One of the most discussed points of economic 
theory at the present time is whether changes 
in the production of gold have any connection 
with the present rise in prices. It is no mere 
academic question, since anticipations as to the 
continuance of the rise in prices, as well as the 
operation of their causes, are very evidently de- 
pendent upon the point of view as to the reason 
of the rise in prices. 

In our own party this matter is also much 
argued. This discussion, considering the im- 
portance of the question, would be much more 
keen if it were not £or the fact that a popular 
presentation of the matter is very difficult. I 
hope, however, to make the main points gener- 
ally clear. If the reader, however, in spite of 

my efforts, meets with difficulties, it will be for 

IT 



18 THE HIGH COST OF LIVING 

the most part at the beginning of the work. 
The closing chapter is intelligible in itself with- 
out knowledge of the matter preceding it. 

Comrade Varga published, more than a year 
ago, an article in the Neue Zeit on " Gold Pro- . 
duction and the Rise in Prices," in which he set 
forth the theory that changes in the production 
of gold are not accountable for the present rise 
in prices, and furthermore that such changes 
would never cause a fall in the value of gold, 
but only a rise of ground rents in mining. 

He has recently sought to support this view, 
which was contested by Otto Bauer, J. V. G., 
and myself. Whatever one may think about 
Varga's views, they have unquestionably pre- 
sented an important problem which had not 
been formerly stated. The statement of a new 
problem, moreover, constitutes a service to sci- 
ence, when, as in this instance, it is not hap- 
hazard, but proceeds from a complete knowledge 
of the subject. , 

Varga said in his first article : " In ^ Capi- 
tal ' we find no analysis of the method by which 
changes in the method of the production of gold 
affect prices." 

Otto Bauer undertook an investigation of the 
entire modern production-process, but in it he 
took up a problem which is peculiar to the sim- 
ple pre-capitalistic handicraft method of pro- 
duction and which must therefore be solved by 
itself. 



THE HIGH COST OF LIVING 19 

Varga declares the system of banking to be 
the reason why changes in the production of 
gold do not automatically operate to produce 
changes in the value of gold. Because the cen- 
tral banks corner all the gold which comes into 
the world market no lowering of the value of 
gold can take place. So it would appear from 
this as if the problem were a different one under 
the modern capitalistic system than under a 
system in which goods are simply produced. 
But in reality the banks play no part in the 
economic role of gold in connection with this 
question, as I have already shown in a former 
article. 

But in the simple system of producing com- 
modities there is no limit to the hoarding of 
gold and silver respectively and particularly 
cash, because money is a commodity, and the 
only commodity of which one can never have 
enough. As for the simple method of produc- 
tion of commodities, Marx said : " The im- 
pulse to collect treasure is measureless.'^ 
(" Capital,'' Vol. I. Charles H. Kerr & Com- 
pany, Chicago.) The existence of banks was 
not necessary to develop this, and the capitalis- 
tic method of employing money makes no 
change in the immeasurability of the tendency 
to accumulate. 

In its very notion money seems to be a com- 
modity different from all other commodities, in 
that it can be used in every case and under 



20 THE HIGH COST OF LIVING 

all circumstances. Thus the money-commodity 
becomes money. 

If Varga concludes from this that changes 
in the method of producing gold cannot make 
changes in the prices of commodities, he proves 
too much, since such changes have been of fre- 
quent occurrence in history, and conspicuously 
so in the sixteenth century, after the discovery 
of America. 

The fact established, the problem remains 
merely to discover in what fashion the change 
in the value of gold appears in the market and 
expresses itself in prices. 

In mere commodity-exchange without the in- 
tervention of gold, each of the two commodities 
to be exchanged, for example a table and a coat, 
represents a supply and a demand. The owner 
of the table offers it to acquire a coat. He only 
effects an exchange when a tailor appears on 
the market who offers a coat and wants a table 
for it. 

As soon as a commodity becomes a money- 
commodity a change takes place. The table, 
the commodity, represents only an offer. It 
may find no one who wants it. At the other 
pole of wares is money, which is the thing de- 
sired, and not the thing offered. 

The amount of demand for a given commod- 
ity depends upon the mass of the owners of 
money who feel a desire to acquire it for a given 
price, and upon the quantity of money which 



THE HIGH COST OF LIVING 21 

they have. The mass of money at a given time 
on the market constitutes the maximum possi- 
ble demand, for commodities at that time — we 
are here investigating simple cases, merely, and 
take no account of credit. The more money 
people have, the greater the demand for com- 
modities under the same circumstances. The 
greater the demand, the higher the price of 
commodities under the same circumstances. 

One may picture the matter naturally as the 
whole mass of money, on the one hand, and, on 
the other, as the whole mass of commodities, and 
prices as being fixed by their mutual relations ; 
or as if the owners of money and the owners of 
commodities were two different classes face to 
face. 

But the former owner of a commodity becomes 
the owner of money when he has sold his wares, 
and the demand for commodities which he is now 
able to make becomes all the greater. The 
more goods he formerly sold the greater his 
ability to demand. Inside the circle of the pro- 
duction of goods none can buy unless he has 
first sold, and no one can demand without first 
having offered. On the other hand, no one 
who has made a sale is compelled to expend the 
money, so set free, in the purchase of new com- 
modities. He can hoard it, and when he chooses 
he can buy a commodity directly with the money 
which he has saved, without selling anything 
in the interval. 



22 THE HIGH COST OF LIVING 

The conditions of supply and demand may 
be exceedingly varied in the beginning of the 
production of commodities, depending upon 
manifold conditions. 

A certain step in the extension of the produc- 
tion of commodities requires a certain amount 
of money — gold or silver — to bring about 
the circulation of wares — bujdng and selling. 
A further development of the production of 
commodities goes hand in hand with a corre- 
sponding production of the precious metals, 
which increases the amount in existence. But 
the conditions of the amount of money offered 
and the amount of goods demanded at a given 
time, and therefore the height of the price of 
commodities, depends not on the total amount 
of available money-metal, but upon the numer- 
ous circumstances which cause, sometimes, a 
larger, and, sometimes, a smaller amount of this 
money to be offered on the market. 

There is, however, a point in the production 
of commodities which may be quite independent 
of these conditions ; that is, the production of 
gold. I am speaking now of the production of 
gold alone. Where the use of silver predomi- 
nates, the same is implied of silver. 

If the producer of gold does not sell his 
product as industrial raw material, but trans- 
forms it into money, he is the only producer in 
the realm of commodities who enters the market, 
not with an offer, but with a demand. The 



THE HIGH COST OF LIVING 23 

demand which he makes is quite independent of 
the conditions of the market in so far as he is 
the only producer who does not need to have 
sold in order to be able to buy. 

Increase of its production implies under all 
conditions increase of demand on the commodity 
market. And this increase is by no means lim- 
ited to the amount of its production.' If the 
producer of gold buys wares with liis product, 
these possessors of wares are thereby placed 
in a position to buy wares themselves, and so 
on. Additional gold becomes the starting- 
point and the impetus to an additional circula- 
tion of commodities in which again arise new 
demands and commodities. This additional cir- 
culation is involved in the circulation already 
existing, influences it, and is influenced by it. 
Its speed is therefore to a great extent depend- 
ent upon the same circumstances as those on 
which the old circulation depends. However 
it may shape itself, the amount of demand 
which the additional gold develops is on every 
occasion a multiple of the sum of values of the 
gold itself. 

If, for example, the j'early gold production 
is one hundred thousand pounds of gold, one 
hundred and forty million marks, this sum 
fomis, if entirely transformed into money, an in- 
creased demand for commodities to the extent of 
700 million marks a year. This occurs if the 
entire circulation of commodities is such that 



24 THE HIGH COST OF LIVING 

each piece of gold on an average makes five 
purchases a year. On the other hand, if cir- 
culation is so rapid that each piece of gold 
makes ten purchases, the additional demand 
will be 1400 million marks. Every time it 
will be much higher than the sum of the values 
of the gold produced. 

According to what has been said, it will not 
be very difficult to estimate how a change in 
the conditions of producing gold will result. 

Let us take a society, in the next place, with 
simple, that is to say, precapitalistic, produc- 
tion of commodities, such as handicraft shows, 
for example. Every worker owns his own 
means of production. No-^one produces for 
himself, but each makes wares for the market. 
There are no machines and no industrial re- 
serve army. All the forces of labor are at 
work and distributed through various branches 
of production, so that none of these branches 
can push ahead of the other unless labor leaves 
the latter to go into it. 

This does not mean, by any means, that the 
same amount will be produced every year (sim- 
ple reproduction). An enlargement of produc- 
tion is possible and very necessary, even in the 
simple production of wares to provide for in- 
creased population. But a sudden increase of 
production is, under the conditions of simple, 
production of commodities, impossible. It 
can only grow steadily and evenly from year 



THE HIGH COST OF LIVING 25 

to year. The circulation of commodities fol- 
lows the rule of the law of value. The product 
of an hour of labor is bought with gold to whose 
production an hour of labor is necessary. 

Now let us consider the increase of gold pro- 
duction in the given society. For example, sup- 
pose it is possible by means of gold discoveries 
to double the production of gold in the same 
mines with an equal expenditure of labor, in- 
stead of one hundred thousand pounds (140 
million marks), 200,000 pounds a year. 

Productivity in other branches remains the 
same, therefore the amount of commodities for 
the market does not grow in proportion to the 
amount of gold. The demand for commodities 
therefore grows stronger than the supply. 
The prices for commodities must therefore nec- 
essarily rise, even if there is not the least 
change in the disposition of the social labor 
forces. 

How high the prices will rise is, however, 
not solely fixed by the yearly increase in the 
production of gold. We have seen that the 
additional demand for commodities arising 
through every increase is dependent upon many 
varying conditions in the circulation of com- 
modities. 

In the extreme cases which we have taken, 
that the productivity of gold production is 
suddenly doubled, there will arise a violent new 
demand for commodities, which cannot be satis- 



26 THE HIGH COST OF LIVING 

fied at the old prices. Every commodity which 
comes into the market can find a buyer as the 
circulation of commodities is accelerated, but 
thereupon also the demand for commodities is 
still further increased in proportion to the 
newly furnished increase in the amount of 
gold. 

The result will be a doubling of the prices 
of commodities. If this is not so, gold pro- 
duction will have a particular power of at- 
traction for the labor-force of society. The 
gold digger could then buy for the product of 
an hour's labor more than the product of an 
hour's labor. He would have to work less hard 
than the laborers in other pursuits in order to 
live as well, or he could live better with the 
same expenditure of labor-power. So that 
numbers of workers in other branches of indus- 
try would leave these and take to gold mining. 
That means that under given conditions the 
production of commodities would be limited, 
and that of gold increased still further. 
Again, the demand for commodities would be 
increased until workers in the gold mines can- 
not live any better than those in other branches 
of labor and until the compelling force to gold 
digging ceases, that is, until with the product of 
one hour's labor the product of one hour's la- 
bor can be bought, and the law of values has 
been realized. 

A diminution of industry and of agriculture 



THE HIGH COST OF LIVING 27 

through excessive direction of labor power into 
the production of the precious metals in the 
simple stage of the production of commodities 
is no merely theoretical hypothesis, but can be 
observed many times in history. 

In Spain, after the discovery of rich gold 
and silver fields in America in the sixteenth 
century, the forces of labor flocked to them. 
A mass of precious metals was thrown upon the 
Spanish market, and at the same time the in- 
dustry of the country went backward. The 
old historian Anderson, in his history of trade, 
has cited a set of Spanish statistics for the 
year 1588, according to which there was then 
in Spain not more than a million male adults, 
and therefore a total number of five millions of 
people. As causes of depopulation and eco- 
nomic decay, he cites the driving out of the 
Moors and the Jews, the numerous European 
wars of Charles V and Philip II, and finall^^ 
the emigration of the stronger elements to the 
American lands. 

Where mere increase of demand for commod- 
ities does not operate to restore the equality 
of exchange of similar values which have been 
disturbed by a change in the value of gold in 
the simple production of commodities, the limi- 
tation of supply accomplished the same result. 

It is probably an obvious objection that a 
mere increase in the amount of gold money will 
have the effect of increasing demand, and there- 



28 THE HIGH COST OF LIVING 

fore raise the prices of commodities even with- 
out any diminution in the value of gold. 

I have already postulated that the yearly 
production of gold is doubled by reason of an 
improvement in technique which has allowed as 
much gold to be produced by half an hour's la- 
bor as formerly took an hour's labor to pro- 
duce. One might now take an instance of the 
discovery of new gold fields which were not 
richer but just as rich as those hitherto exist- 
ing, and which, with the same amount of labor, 
produced the same amount of gold as before. 
In this case, too, the yearly amount of gold is 
doubled, and the demand for commodities and 
their prices are enormously increased without 
any changes in the value of gold. 

This would be correct if gold fields alone, 
and not m.en, were necessary to the production 
of gold. According to the first hypothesis, the 
production of gold required no more labor 
power than formerly in order to double the 
production of gold. In the case we are now 
considering, twice as many men would be neces- 
sary. Whence will they come? Simple com- 
modity production has no industrial reserve 
army. They must be taken from their pres- 
ent occupations. But what will induce them to 
take up the production of gold? They earn 
no more in their new occupation than in the old. 
Indeed, since the iricrease in the amount of gold 
brought about an increase in the price of com- 



THE HIGH COST OF LIVING 29 

modities, while the amount of gold which each 
miner produced remained the same, they would 
be better off by engaging in the production of 
other commodities than mining gold. There 
would therefore not be the least inducement 
to put additional labor power into the produc- 
tion of gold and to double that production. 

Still new discoveries of gold lead to an in- 
crease in the production of gold. The condi- 
tion remains stable provided that all gold fields 
are equally productive. This is well known not 
to be the case. Some are enormously rich and 
yield great returns for little labor, and there are 
others whose product barely maintains the 
miner. Similar differences mark both the new 
and the old gold discoveries. The richest would 
be sure to attract the greatest amount of labor 
power. The increased production increases 
prices and thereby does away with the possibil- 
ity of maintaining the old gold fields. Their 
workers can no longer buy the same amount of 
commodities with the product of their labor, 
cannot live, in fact. 

The result would not be a doubling of the la- 
bor time in gold mining, but a shifting of the 
time heretofore spent in the labor of gold min- 
ing. Only the rich mines would be worked 
and so the same amount of labor time would 
then produce an increased amount of gold, 
whose sum would be of the same value as that of 
the gold formerly produced. The value of a 



30 THE HIGH COST OF LIVING 

given amount of gold, e. g., of a pound of gold 
or a specific piece of gold coin, has therefore 
fallen. 

Here we find a mutual adjustment between 
the value of gold and the prices of commodi- 
ties, though the method of adjustment is here 
different. Both are mutually dependent, and 
cannot remain independent of each other. 

This does not mean, however, that the prices 
of commodities always reflect the relation of 
commodity value and gold value. This is not 
true for single market transactions. Also it 
is not true, as an average, if we disregard the 
modification of the law of value by the adjust- 
ment of the rate of profit where we consider the 
precapitalistic methods of production. Marx 
says of gold: "Jacob doubted if gold was 
ever paid for at its full value. This is still 
more true of diamonds.' (" Capital,'' I.) 

In other words, the commodity prices ex- 
pressed in gold are always higher than should 
correspond with the full value of the gold. 
I\Iarx has, unfortunately, not told us how this 
happens. 

I see the undervaluation of gold, particularly 
in this, that it not naerely displays a great 
amount of value in a small compass, but that 
the creation of such an amount of value is fre- 
quently a disturbing element. 

In a diamond or gold district a worker may 
find a rix;h diamond or a gold nugget without 



THE HIGH COST OF LIVING 31 

much seeking; he^will then be hailed by the op- 
ponents of the Marxian theory as the complete 
demolisher of that theor3^ The critics forget, 
however, that many other diamond and gold 
seekers, who have sought the desired treasure 
vainlj', or with trivial success, have been re- 
paid poorly, or not at all. But the gold seek- 
ers are like the vulgar economists ; they see 
only the nuggets of the one and not the fail- 
ures of the others, and they go off to the mines 
in which, as a whole, they expend more labor 
than they get values. That means that, as 
a whole, their standard of living is poorer than 
that of the generality. We are not speaking 
of wages. It must be remembered that we are 
still concerned with the period of simple pro- 
duction of commodities, in which the worker 
works with his own tools and is the master of 
his product, not yet being a wage worker. In 
the production of gold this stage lasts a long 
time. Even in the middle of the last century 
the gold miners in California and Australia 
were independent producers. In the Klondyke 
they are for the most part so to-day. This 
has been in part the cause and in part the re- 
sult of the long technical backwardness in get- 
ting gold. The great privations which the 
mass of miners endure are well known. In 
spite of this, it is the hunt for the fabled nug- 
gets which impels them. It is the same with 
the production of silver. 



33 THE HIGH COST OF LIVING 

Adam Smith, in " The Wealth of Nations," 
in the eleventh chapter of the first book, says: 

"Neither are the profits of the undertakers of silver 
mines commonly very great in Peru. The same most re- 
spectable and well-informed authors acquaint us that 
when any person undertakes to work a new mine in 
Peru, he is universally looked upon as a man destined 
to bankruptcy and ruin, and is upon that account 
shunned and avoided by everybody. Mining, it seems, is 
considered there in the same light as here, as a lottery, 
in v/hich the prizes do not compensate the blanks, though 
the greatness of some tempts many adventurers to throw 
away their fortune in such unprosperous projects." 

The fact that lotteries which do not pay find 
a ready market does not abolish the rule that 
all money capitalists are in pursuit of interest, 
neither does the fact that gold does not ex- 
change for its full value do away with the law 
of value. This law not only says that all goods 
at a given time exchange for the amount of so- 
cially necessary labor incorporated in them, 
but that the value of a commodity and, there- 
fore, its exchange value, as compared with 
other goods, changes when the amount of 
social labor necessary to its reproduction 
changes, that is, rises and falls proportion- 
ately. 

In this sense the law of value applies to such 
goods as for one reason or another regularly 
exchange above or below their real value. 

Varga says that the improvement in the 
methods of getting gold must result in an in- 



THE HIGH COST OF LIVING 33 

crease in the differential rent of gold-mining. 
If, at the present time, in the poorest mines, 
two pounds of gold can be got with the same 
amount of labor, let us say one week's labor, 
per man where formerly only one pound could 
be had people will now exploit gold mines 
which formerly did not pay. A mine which 
only produced half a pound of gold for a 
week's labor would now yield a pound with a 
similar amount of labor and thus be worth 
working. Mines which up to the present pro- 
duced only a pound a man per week and so 
yielded no differential rent, could now pay the 
rent of a pound of gold per man per week. The 
least productive mine, costing the most to 
operate, is, however, the one which fixes the 
value of gold. This, therefore, will not sink, 
while the least productive mine produces a 
pound per man per week. The socially neces- 
sary amount of labor for the production of the 
gold and therefore its value remains the same. 
This method of proof would be unimpeach- 
able, save for the fact that it merely states 
that which it seeks to prove, namely, that 
prices do not rise because of the increased pro- 
duction of gold. Varga says: 

" Owing to the cheaper working of ores a kilogramme 
of gold metal can now be had by the expenditure of a 
smaller quantity of minted gold." 

But gold is not produced by means of gold, 
but by the expenditure of human labor. 



34 THE HIGH COST OF LIVING 

When, as a result of the increased demand 
which the increased gold production causes, 
the prices of commodities rise, the cost of the 
means of life and the tools required by the 
gold miners also rise. These will rise first and 
to the greatest extent, because the increase in 
gold production especially increases the de- 
mand for them. The higher the price of these 
the greater the tendency to save labor power 
in gold mining, and the less the possibility of 
taking up new mines. 

If Varga's theory were correct, the ground 
rents for mining the precious metals would, in 
the course of time, become higher than in any 
other method of exploiting land. But Adam 
Smith declares that in no other form of indus- 
try are ground rents so low, and Marx sup- 
ports him. He quotes the following extract 
from Smith's " Wealth of Nations," in his 
"Theories of Surplus Value": 

" The price, therefore, of the coarse, and still more that 
of the precious metals at the most fertile mines in the 
world, must necessarily more or less affect their price at 
every other in it. 

" The price of every metal, at every time, therefore, 
being regulated in some measure by its price at the most 
fertile mine in the world that is actually wrought, it 
can, at the greater part of mines, do very little more than 
pay the expense of working, and can seldom afford a 
very high rent to the landlord. Rent, accordingly, seems 
at the greater part of mines to have but a small share 
in the price of the coarse, and a still smaller in that of 
the precious metals. Labor and profit make up the 
greater part of both. 



THE HIGH COST OF LIVING 35 

" As the price, both of the precious metals and of the 
precious stones, is regulated all over the world by their 
price at the most fertile mine in it, the rent which a 
mine of either can afford to its proprietor is in propor- 
tion, not to its absolute, but to what may be called its 
relative fertility, or to its superiority over other mines of 
the same kind. If new mines were discovered, as much 
superior to those of Potosi as they were superior to those 
of Europe, the value of silver might be so much degraded 
as to render even the mines of Potosi not worth the 
working." 

Ricardo differs from this opinion, but Marx, 
on the other hand, agrees with it. He only 
thinks Smith makes a mistake in that he 
attributes the special combinations of the mar- 
ket to the general market. But as he expressed 
himself: "His reasoning is on the whole cor- 
rect, and Ricardo is wrong." 

The " special combinations " under which 
the Smith proposition proceeds is that develop- 
ment is not from the exploitation of richer 
mines to poorer, and therefore just the combi- 
nation which our investigation overturns. 

Thus, according to Marx, there is no rise 
in differential rent, but an increase in the yield 
of a few rich mines following on the discovery 
of new rich gold and silver fields. 

This is not a mere theoretical conclusion. 
In the sixteenth century, when the great stream 
of precious metals, gold and silver, from the 
newly discovered lands of America, came to 
Europe, there were gold mines in the Alps. 
Will anyone declare that they all became ex- 



36 THE HIGH COST OF LIVING 

hausted simultaneously? Why was not the 
rise in prices, due to the precious metals of 
America, the universal reason which trans- 
formed the working of all these mines at one 
and the same time into a losing business? 
Ground rents, as far as concerns the gold mines 
of the Austrian Alps, were at that time not 
only not raised, but for the most part entirely 
destroyed. 

Of the silver mines. Smith says in this much 
quoted chapter: 

" After the discovery of the mines of Peru the silver 
mines of Europe were the greater part of them aban- 
doned. The value of silver was so much reduced that 
their produce could no longer pay the expense of work- 
ing them or replace with a profit the food, clothes, lodg- 
ing and other necessaries which were concerned in that 
operation. This was the case, too, with the mines of 
Cuba and St. Domingo, and even with the ancient mines 
of Peru." 

The same fate happened to the gold and sil- 
ver mines of Europe, at least in Germany. 
They had brought into being quite an impor- 
tant Protestant power in Saxony and Bohemia 
and the Alpine countries. The decline in the 
mining of silver weakened Saxony, the cradle 
of Protestantism, and Bohemia, where Calvin- 
ism was followed by the Hussites. In the Al- 
pine countries again the discontinuance of gold 
mining lost Protestantism its position. 

" The downfall of mining, following the com- 
petition of the precious metals from America, 



THE HIGH COST OF LIVING 37 

broke the resistance of the mmers in the moun- 
tains. In the Alpine countries, Tyrol, Salz- 
burg, Steiermark, etc., mining was completely 
stopped, and with it was lost the only pro- 
gressive thinking element in those regions. 
The districts which had, in 1525, risen victori- 
ously against the noble and the priest, became 
the stronghold of ecclesiasticism and absolu- 
tism ; some districts of Austria which had taken 
a vigorous part in the revolution of 1525 be- 
came an Austrian Vendee, in which changes the 
decline of the mines was in each instance the 
preponderating factor." (Kautsky, '' The 
Miners' and Peasants' War,'' Neiie Zeit, 1889). 

Thus even religious reform is dependent 
upon gold. One can see how transformations 
in the methods of producing gold cause trans- 
formations in price, in the method of producing 
goods, and finally in the relative strength of 
classes. 

What has been said hitherto applies only 
to the condition of the simple production of 
commodities. How do these matters stand as 
regards the capitalistic method of production .^^ 



II 

CAPITAI^STIC METHOD OF PUODUCTION. 

To get at scientific results we must set out 
the material facts as simply as passible and in- 
vestigate them. When the interrelations of 
things are learned by pursuing this method, we 
can grasp the more complicated and superficial 
facts with greater ease. If we begin by inves- 
tigating the latter we become lost in a labyrinth 
and the issues are obscured. 

Let us, therefore, put the case as simply as 
possible. So far, we have considered gold as 
the only money metal, and have ignored silver. 
We have also considered all the gold produced 
as being made into money. Finally, in the 
last chapter, we considered gold as produced 
under the universal conditions of simple pro- 
duction of commodities. Let us now examine 
the effect which changes in its production make 
upon prices, under the conditions of universal 
capitahstic production. In reality, however, 
there are numerous intermediate stages. For 
example, in the mines in the Alps gold was pro- 
duced capitalistically by entrepreneurs who 
employed laborers, in the midst of a society in 



THE HIGH COST OF LIVING 39 

which simple production of commodities was 
the dominant form, and which went hand in 
hand with an extension of production for use. 
In Spanish America, on the other hand, the 
workers in the gold and silver mines were In- 
dian slaves. In California and Australia, 
again, for half a century gold mining was car- 
ried on under the conditions of the simple pro- 
duction of commodities by free producers, who 
owned their own tools and land. This latter 
system of producing gold was, however, a sub- 
stantial portion of a very highly developed 
capitalistic method of production. 

We shall have to ignore these intermediate 
stages. Let us now look at the capitalistic 
method of producing gold in a capitalistic so- 
ciety. How does a change in the method of 
producing gold operate — a lessening of the 
amount of social labor necessary to the produc- 
tion of a given quantity of gold? Since we are 
concerned with the question of the rise in prices 
we shall merely keep in view the results of a 
diminution in the quantity of labor, and shall 
here leave out of consideration any increase in 
the amount of labor necessary to produce gold 
owing to a decline in the productivity of the 
mines. 

The gold mines are possessed by the capital- 
ists. So also is the equipment and machinery 
necessary to work them and get the gold. The 
workers are wage workers. They are paid like 



40 THE HIGH COST OF LIVING 

other hired workers. The question of the pro- 
ductivity of labor is therefore immaterial to 
them. If the production of a pound of gold 
formerly took two weeks' work of one man, 
but now only takes one, it does not mean that 
his weekly pay will be doubled. That remains 
the same, as long as the increased gold produc- 
tion does not change the price of the necessaries 
of life. The extra po.und of gold which the 
two weeks' work produces does not imply any 
increased cost of production. It is pure profit 
to the capitalist who owns and works the mine. 

This condition, however, cannot long con- 
tinue. It must result that if the annual gold 
supply is doubled, there will be an increased 
demand for commodities at the current prices. 

The results on the market are, at the begin- 
ning at least, identical with those in the case 
of the simple production of commodities. The 
gold is not any longer delivered by the diggers, 
but by the exploiter of diggers. The increased 
amount of gold may be used by him in two dif- 
ferent ways. He can buy articles of consump- 
tion or means of production to increase his 
business. He can loan it directly or indirectly 
in the form of interest-bearing government se- 
curities or obligations, or take shares in other 
businesses. 

The more capitalism develops the more will 
these last forms of expenditure of newly ac- 
quired gold be employed. And thus, by these 



THE HIGH COST OF LIVING 41 

means, the gold leaves the possession of the 
gold producers to spread itself over the world. 

In this way a remarkable phenomenon is ex- 
plained to which the Director of the United 
States Mint, in his report for the year 1911, al- 
ludes, a report which contains a wealth of ma- 
terial on the gold question. The phenomenon 
is the fact that the majority of mines in the 
world belong to England, and yet only a mini- 
mum of the gold taken from them goes to Eng- 
land. From December, 1899, to December, 
1910, there went to the Enghsh banks less than 
ten millions, against fifty-three and one half 
millions to Austria, one hundred and sixty-two 
millions to Italy, one hundred and ninety-five 
millions to Russia and over forty-eight millions 
to the Balkan states, etc. Of course the 
wealth of these States did not increase so much 
more than that of England. It was chiefly a 
movement of gold coins which caused such a 
quantity of gold to go to Eastern and South- 
ern Europe. This movement, however, chiefly 
appeared in the form of loans. 

In whatever wa}' the owners of the gold may 
use the additional gold, it serves like other gold 
to buy goods, means of consumption, means of 
production, means of destruction. Demand for 
goods is increased thereby and prices rise. 

If this increased demand showed no rise at 
all, or no corresponding rise in prices, the 
greater productivity of the mines in propor- 



42 THE HIGH COST OF LIVING 

tion to the capital invested in them would raise 
the profits of capital invested in gold mining 
above the average rate of profit§^ in the world 
of capital, and there would be a tendency to in- 
vest in them similar to that which occurred 
under like circumstances in the system of sim- 
ple production of goods. Only, formerly, the 
higher productivity in gold-production di- 
rectly stimulated increased labor to that indus- 
try. This occurs now, but the increased profit 
does not go to the worker. Still, this increased 
profit causes an increased stream of capital to 
flow into gold mining, which under these condi- 
tions yields a greater profit than the average. 
The increased capital then attracts increased 
labor power, without which, indeed, it cannot 
be applied. 

Therefore new capital and new labor power 
go to the gold fields. If, in spite of the in- 
creased demand, the prices of commodities do 
not rise sufficiently high to equalize the differ- 
ence in the rates of profit, the additional capi- 
tal and labor power produce new additional 
quantities of gold which on their part again 
create a greater demand for commodities and 
drive prices higher. 

The stream of new capital to the gold fields 
will last until the rise in the price of commodi- 
ties has reached such a point that the extra 
profits of gold-producing cease and the rate of 
profit is the same as in other branches of pro- 



THE HIGH COST OF LIVING 43 

duction. Indeed, it can go so far as to reduce 
the average rate of profit in gold-mining below 
the general rate of profit upon the same 
grounds according to which the selling-price 
of gold is beneath its exchange value. The 
lottery character which belongs to gold minings 
even under the capitalistic method, impels nu- 
merous capitalists to it, who invest in mines 
whose rentability is very low. Varga in his 
argument has given some strong examples of 
this. Just compare the dividends in the two 
following samples of South African gold min- 
ing: 



1901 234 5 6789 10 

Ferreira 100 QSly^ 250 QQ^y^ 300 300 300 600 300 

General mining 10 10 20 5 15 

Results vary in one year from to 600 per 
cent. 

As you see, it is quite a lottery. 

In the special report on mining from the 
American Census Bureau of 1900 (Special Re- 
port on Mines and Quarries, 1902, Washington, 
1905) Dr. J. Hourwich discussed " Gold and 
Silver" (p. 509-589). 

Dr. Hourwich gives the following figures for 
1079 companies engaged in gold and silver 
mining in the United States: 



44 THE HIGH COST OF LIVING 



Not paying dividends. 

Paying In full Develop- 

dividends work ing 

No. of companies 136 614 329 

Output for labor in 

dollars 13,300,000 19,400,000 3,600,000 

Other cost of working 

in doUars 7,500,000 10,000,000 1,600,000 

Value of product in 

dollars 35,300,000 31,600,000 1,100,000 



Therefore only a small number of companies 
paid dividends. They were Indeed the largest. 
They produced more than one-half of the whole. 
Those not paying, however, employed more la- 
bor than those paying. Similar conditions 
could be found In no other Industry, 

Just as in lotteries. It Is the small people 
who are robbed of their money by promoters. 
Shares may be valued and offered at the small- 
est possible sums. According to this report, 
the dividends of the paying companies have no 
less than 94,700,000 shares at an average of 
two dollars a share. There is democratiza- 
tion of capital for you! Every workingman 
can become a capitalist, the owner of gold 
mines. 

The sums paid out In dividends on these 
shares amounted to ten and a half million dol- 
lars, or a little more than five per cent, on the 
amount Invested. 

There is, however, the enormous number of 



THE HIGH COST OF LIVING 45 

5I65OOO5OOO shares of those companies which 
paid no dividends. The democratization of 
capital was still further advanced. The av- 
erage nominal value of a share was one dollar 
and sixty cents. The glittering gleam of gold 
which is so universally attractive emptied the 
pockets of its pursuers to the extent of $834,- 
OOO5OOO, leaving them merely paper which paid 
no dividends, and the mines produced riches 
only for the promoters and agents. 

On the whole in 1902 four billions of marks 
were invested in American gold and silver 
mines and fifty million marks were distributed 
as dividends, about one per cent. 

Altogether the capital in mining in the 
United States consists of shares representing 
2900 milKons of dollars on which dividends to 
the amount of 72 million dollars were paid in 
1892. 

Therefore we find: 



Gold and silver mines Other mines 
Share capital in dollars. . 1017 million 1886 million 
Amount of dividends in 

dollars 10 million 62 million 

Average per cent, in divi- 
dends 1 per cent. 3% per cent. 



That shows that the profit rate in the pro- 
duction of gold and silver is far below the 
average. 

So far we have been considering the effect of 



46 THE HIGH COST OF LIVING 

changes in the method of producing gold under 
the capitaHstic system of production. They 
are analogous to those under the simple pro- 
duction of commodities. But the effects of an 
increased production of gold upon industrial 
production are quite different under capitalis- 
tic conditions. 

Stability is one of the marks of the simple 
production of commodities. It proceeds year 
by year in the same course undisturbed by sur- 
plus goods which come from general over-pro- 
duction or too rash extension. Each handi- 
craft develops its different classes of work dif- 
ferentiated by long training and which cannot 
invade each other. Besides under this method, 
while there is a considerable out-of-work pro- 
letariat it is an inferior proletariat, which, 
under the given technical conditions cannot be 
involved in the production process. This is 
prevented not only by the requirements of edu- 
cated craftsmanship but owing also to the lack 
of the extra means of production for extra 
skilled labor. 

The capitalist system is different. Marx 
explains in " Capital " the methods by which 
on the one hand an industrial reserve army is 
formed, and, on the other, enormous speed is 
added to the accumulation of capital and 
through both of them together the most rapid 
extension of production is rendered possible 
and this extension, owing to the accumulation 



THE HIGH COST OF LIVING 47 

of products, becomes a necessity for the entire 
capitalistic method of production. 

I have predicated the method of arriving at 
these conclusions as well known. 

Under these circumstances the extension of 
gold-production operates differently than 
under the simple method of producing com- 
modities. A rise in production under the lat- 
ter brings with it an increase of prices on the 
market without stimulating the production of 
commodities and often indeed with the effect of 
stopping and limiting it. 

Under the capitalistic method of production, 
on the other hand, every increase in the demand 
for goods acts as a spur to extend production, 
a spur which the process of production imme- 
diately and readily obeys. 

The increased amount of gold which appears 
upon the market and causes an increased de- 
mand for commodities, raises their price and 
hence the profit to be had from their produc- 
tion. So, not only the production of gold but 
all the other branches of industry, incited by 
it, require new capital and additional labor 
power. The capitalist method of production is 
well equipped and the extension of the produc- 
tion of gold does not by any means drain the 
reserve industrial army. 

One might imagine that the increased de- 
mand of gold would soon be met by an increased 
supply of commodities and that the earlier 



48 THE HIGH COST OF LIVING 

standard of prices would be restored. That 
would imply nothing less than a restoration of 
the extraordinary profit-rate of gold mining. 
As a result increased capital would again flow 
to it, gold production would be extended afresh, 
demand for commodities would be again in- 
creased, and prices would again rise which 
would give a new impetus to the production of 
commodities and so forth. If the addition to 
the production of gold is not transitional, but 
continuous, it must have the greatest possible 
influence on the process of production. 

Suppose that the increased quantities of gold 
only increased the demand for machinery (for 
the new mines),for palaces for the gold upstarts, 
for wine and beer and loom-products for men 
and women servants, and the wage workers in 
the gold mines. This means again an increased 
demand for iron and coal and wool and cotton, 
for brick and stone, for machinery for spinning 
and weaving, for malt and hops and corn and 
butchers' meat, etc. The profit and the sums 
expended in wages in all of these industries must 
consequently rise. Besides, they make new de- 
mands for means of consumption and produc- 
tion of all kinds. If this process lasts for some 
time and there is steadily, as we have said, 
more gold put on the market, we have a thor- 
ough-going era of prosperity steadily marked 
by a general rise in prices. 

This rise in prices now appears, if it is uni- 



THE HIGH COST OF LIVING 49 

versal, to operate against the increase of the 
profit rate in industry in that it increases the 
cost of raw material and wages, and therebj^ to 
restore the superior profit rate which existed 
at the beginning of the improvement in the con- 
ditions of production before the rise of prices. 
As long as profit depends upon prices it is 
shown by the difference between buying and 
selling price. 

If accordingly the price of a manufactured 
commodity rises and simultaneously with it the 
price of raw material, of machinery and of 
labor power, profits do not increase, they may 
even diminish if the price of the latter factors 
increase more rapidly than that of the com- 
pleted product. 

So the rate of profit depends not alone on the 
difference in prices. It is reckoned by the year 
according to the total amount of profit which 
comes from a given amount of capital in the 
course of the ^^ear. This total amount depends 
not only upon the amount of the profit which the 
capitalist gets from any single piece of busi- 
ness but upon all the pieces of business which 
he transacts in the course of the year. If the 
capitalist does not let his goods lie long but 
sells them quickly and gets his money for them, 
he turns over his capital quickly and thereby 
increases the annual amount of his rate of 
profit, even if the profit realized on each turn- 
over remains the same. It may even increase 



50 THE HIGH COST OF LIVING 

where the profit on each separate transaction 
decreases. 

Let us suppose that the capitalist makes ten 
per cent, on each turn-over of his capital, and 
that he turns over his capital twice a year, that 
means a yearly profit of twenty per cent. Let 
us suppose too that increase in the cost of raw 
materials and the price of labor reduce his 
profit on each turn-over of his capital to five 
per cent., but the speedy movement of business 
lets him turn over his capital six times a year, 
his yearly profit will be thirty per cent. 

An increased demand for commodities brings 
with it this rapid movement^ in business and 
quick turn-over of capital and thus increases 
profits in spite of the general increase in prices. 

In the production of gold it is impossible to 
increase the rate of profits by a quick turn-over 
of capital since the turn-over depends upon the 
condition of the market and not on technique. 
The transformation of money into commodities 
and of commodities into money upon the market 
does not exist for gold, as long as it functions 
as gold. The rate of profit in gold mining de- 
pends exclusively upon the conditions of pro- 
duction and not on the speed of the circulation 
of commodities. Gold is money as soon as it 
is produced, that is to say, placed on the mar- 
ket. It does not have to wait for any buyer 
to transform it into money. 

The rise in the rate of profit through the 



THE HIGH COST OF LIVING 51 

speed in the circulation of commodities pertains 
therefore exclusively to capital invested in 
the production of commodities. Therefore the 
flow of capital to gold mining is kept within 
certain limits. As soon as the production of 
a new amount of gold begins, a brisk demand 
for goods appears and awakens the production 
as well as the sale of goods. This awakening, 
this speed in the production of goods, goes 
hand in hand with a rise in prices as each period 
of prosperity shows. The occurrence of such 
an epoch of prosperity and with it an increase 
in the price of goods, is the method by which, 
under capitalistic conditions, the law of value 
establishes itself in gold mining, by lessening 
the amount of labor time socially necessary to 
the production of a certain quantity of gold. 
If this method is not sufficient then the move- 
ment of capital in gold production towards the 
equalization of the profit rate completes it. 

It does not therefore militate against the con- 
tention that changes in the method of producing 
gold have contributed to the present rise in 
prices, when Varga shows that the production 
of commodities throughout the world has been 
enormously increased in the last decade. For 
example, that iron has been increased fifty per 
cent., coal thirty-five per cent., and on the other 
hand that the products of gold-mining have only 
risen thirty-two per cent, in the same period. 
This is a good argument against the quantity 



52 THE HIGH COST OF LIVING 

theory which seeks to explain the rise in prices 
by a mere comparison between the price of com- 
modities and the amount of gold, but it does not 
attack my contention that in the capitalistic 
method of production which makes prosperity 
dependent upon an increase in demand, prices 
and profit rates correspond with the conditions 
of production and establish the law of value for 
gold. 

Varga would explain that the periods of pros- 
perity which we enj oyed for nearly twenty 
years have nothing to do with the changes in 
the production of gold but are dependent upon 
entirely different factors. 

If he wants to show that the law of value does 
not apply to the money-commodity, he must 
prove that an increase in the demand which 
arises from increased gold-production has no 
influence on commodity prices, commodity ex- 
change, or commodity production. He would 
find this hard to prove. 

I believe that I have shown, theoretically, how 
increased gold production must operate in these 
connections. The actual statistics support my 
theoretical conclusions. From 1800 to 1850, 
we give the figures for decades, not for single 
years. So we do not show the yearly varia- 
tions, but only the general tendency of the dec- 
ade. Besides gold-getting, silver-getting had its 
share in the operation of the production of the 
precious metals on economic life. We ignore 



THE HIGH COST OF LIVING 53 

this so as not to complicate the exposition but 
we shall deal with it later. 

Till the middle of the seventies there was no 
change in the relative value of gold and silver 
during the nineteenth century, not even in the 
fifties at the time of the rising production of 
gold. Gold steadily remained fifteen times as 
valuable as silver. There was a speedy change 
in the seventies following upon a rapid change 
in the method of producing silver. In 1870 the 
ratio was 15.57 to 1, 1879 about 18.39 to 1, 
1889 about 22.10, 1889 35.03, 1909 19.74, 1910 
38.82, finally 1911 38.33 to 1. 

Under these circumstances it was impossible 
to retain both silver and gold as standards of 
value. All states which were involved in world 
commerce and up to that time had a silver of a 
double standard have found themselves prac- 
tically, if not admittedly, obliged during the 
last quarter of the last century to adopt the 
gold standard. 

Silver money was not thereby abolished. It 
was merely reduced to the role of inferior 
money. Silver money no longer functioned as 
the representative of its value in silver but of a 
certain gold value established by law. Like 
paper-money silver can only fulfil this function 
as long as its output is confined within certain 
limits. But these are very broad. The de- 
monetization of silver, the discontinuance of Its 
role as money proper, has not ended the coining 



54 THE HIGH COST OF LIVING 

of silver money. It has merely brpught it 
about that silver money realizes the actual value 
of its metal and therefore implies a given 
amount of gold. The value of a single piece 
of silver, its ability to demand, has therefore 
not by any means diminished in proportion to 
the reduction in the value of silver but only in 
proportion to the reduction in the value of gold. 

The demand for small money grows with the 
development of capitalism, partly through the 
development of the wage system, by which the 
number of those in receipt of wages increased 
and at the same time money payment takes the 
place of payment in kind. Both cause the sum 
of money payments to grow enormously and 
these are for the most part made in inferior 
money. 

Thus for example in the United States from 
1880 to 1910 the number of industrial wage 
workers alone increased from 2,700,000 to 
6,600,000 and the annual amount of their wages 
from 950 millions to 3400 million dollars. 

The increase in the sum of the wages paid 
alone causes an increase instead of a decrease 
in the amount of silver money in spite of its de- 
monetization. 

We can learn the amounts of silver money 
which have been newly coined since its demone- 
tization from a review by the Director of the 
United States Mint in his recently published 
report. In the last thirty-eight years 877 mil- 



lAMS 
1870 


FROM 1800 

1880 


TC 


> 1911 


1890 


















































































































































































































































































































































1 


"1 

j 







■■ 






18 


CHART SHOWING 
10 1820 


WORLD'S 

183U 


YEARLY 

1840 


GOLD PRODUCTION 

1850 


IN 

1860 


KILOGRAMS 

1870 


FROM 1800 

1880 


TO 1911 


1890 








1900 








1910 




"700 000 


















_ 




















- 






















_ 






















































"" 


680 000 
















































































































f- 




660 000 














































































































r 






640 000 












































































































~i 








620 000 












































































































/ 








600 000 






































































































■ 






f 








580 000 










































































































/ 










560 000 










































































































/ 










540 000 








































































































■ 


/ 










520 000 










































































































r 










500 000 








































































































^ 












480 000 








































































































/ 












460 000 








































































































/ 












440 000 




































































































A 




f 












420 000 
















































... 




















































\ 
















400 000 




















































































































380 000 


































































































/ 




/ 














360 000 


































































































/ 


















340 000 


































































































1 


















320 000 


































































































/ 


















300 000 




















































































































280 000 






























































































/ 




















260 000 




















































































































240 000 




















































































































220 000 




















































































































200 000 




























































































/ 
























180 000 
























































f 










, . 


__ 




k 




















/ 
























160 000 








































































s 


\ 




/ 


\, 








/ 


























140 000 




• 


















































/ 




















\ 


^ 


/ 




\ 


r^ 


/' 






























120 000 






















































/ 






























































100 000 






















































r 






























































80 000 




















































/ 
































































60 000 




















































/ 
































































40 000 




















































































































20 000 


_ 


_ 




_ 








_ 




_ 












_ 








_^ 


^ 




-^ 




_ 


_ 









_ 






_ 


_ 




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_ 




— 


— 


— 


— 


— 




— 


_ 




— 


_ 


_ 


— 






_ 




— 


— 




— 


— 




— 


— 




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— 



THE HIGH COST OF LIVING 55 

lions of dollars gold have been minted in the 
entire capitalistic world, and silver coins, as 
M^ell, of a mint value of 540 millions of dollars. 
Herein is included a great deal of reminting of 
old coins or minting of old metal. The amount 
of existing supply of money-metal must be val- 
ued at much less. The report gives the amount 
of money lying in the banks for the most im- 
portant countries in the world at, in round num- 
bers, five billions of dollars. 

Through the demonetization of silver the 
mass of metal which it represented has not lost 
its purchasing power, its economic existence. 
It cannot, therefore, be declared that this phe- 
nomenon has worked against and retarded the 
economic influence of increased gold produc- 
tion. 

If we examine the chart we shall find a 
rapid movement soon after 1850, as a result of 
the discovery of gold in California and Aus- 
tralia. These discoveries began to operate on 
the English labor world immediately after the 
disillusionment of 1848. They quickly at- 
tracted the energetic and irreconcilable ele- 
ments, who went off to the gold fields, and by 
this Chartism was conspicuously weakened, just 
as the Reformation lost its most important po- 
sitions in Germany, owing to the gold and sil- 
ver discoveries in Spanish America. On both 
occasions gold strengthened the counter-revo- 
lution. Contemporaneously, changes in the 



56 THE HIGH COST OF LIVING 

production of gold had their economic influ- 
ence in the production of commodities, 

Marx and Engels were the first to point out 
the significance of the California gold discov- 
eries. About 1850 they declared the discovery 
of these mines to be " more important than the 
February Revolution." It brought to Eng- 
land " that amazing increase in wealth and 
power " of which Gladstone spoke in his speech 
on the Budget, and which Marx one year later 
quoted in his inaugural address to the Inter- 
national. This was the brilliant period of the 
French Empire. A rain of gold seemed to pour 
on " good society," We find simultaneously a 
glittering movement in business and a fever of 
promotion and speculation. Finally, that pe- 
riod laid the foundation stone for the develop- 
ment of the great industry of Germany which 
from that time developed rapidly. 

From 1860 the rise in the production of gold 
came to a stop, but began again some time after. 
From 1870 to 1874 we find a marked falling off 
in gold production, a fall in prices notably fol- 
lowed and, then, with the stagnation in gold 
output to the beginning of the nineties a pe- 
riod of lower prices and continued dullness in 
trade that caused many of us, I admit that I was 
one, to think that the capitalistic system had 
already fallen into a condition of chronic over- 
production. 

But suddenly arose a new development of 



THE HIGH COST OF LIVING 57 

gold production such as was never seen in the 
world before. In the year 1886 the first mine 
in the South African Rand was opened. In 1890 
the cyanide process was introduced, in 1897 the 
gold fields of the Yukon in Alaska were discov- 
ered. In proportion as this advance in the pro- 
duction of gold made itself felt, stagnation 
waned, prices began to rise, and capitalism en- 
tered with full force upon a brilliant phase of 
its development. The mutual connection of 
these phenomena is obvious to-day. 

Sauerbeck has calculated the prices of a 
series of staples on the London market since 
1818. If we fix the price between 1891 and 
1900 at 100, we get the following series: 

1818 214 1837 149 

1819 183 1838 149 

1820 169 1839 155 

1821 160 1840 155 

1822 152 1^41 151 

Ig^ ;^55 1842 13T 

i824;;:;::;:;:;:::;;;;;i6o j^jj \f 

iB^6 151 !8l6:::::::::::::::::::S 

182^ 146 1847 148 

1828 146 1848 118 

1829 140 1849 112 

1830 137 1850 116 

1831 139 1851 113 

1832 134 1852 118 

1833 137 1853 143 

1834 136 1854 154 

1835 139 1855 152 

1836 154 1856 152 



58 THE HIGH COST OF LIVING 

1857 158 1884 114 

1858 137 1885 108 

1859 143 1886 104 

1860 149 1887 .103 

1861 168 1888 106 

1863 153 1889 109 

1863 155 1890 108 

1864 158 1891 108 

1865 153 1893 103 

1866 154 1893 .103 

1867 151 1894 95 

1868 149 1895 94 

1869 148 1896 93 

1870 145 1897 93 

1871 151 1898 97 

1873 164 1899 103 

1873 167 1900 113 

1874 154 1901 106 

1875 145 1903 105 

1876 143 1903 105 

1877 143 1904 106 

1878 131 1905 109 

1879 135 1906 116 

1880 133 1907 130 

1881 137 1908 ^ 110 

1883 136 1909 113 

1883 134 1910 117 



We see here how, up to 1849, under a static 
condition of gold production, prices sink uni- 
versalljj with interruptions in times of pros- 
perity. From 1849 prices rise, at first not re- 
markably, and then rapidly from 1853 to 1861. 
Then they remain about the same to 1873, fall- 
ing in times of crisis, rising during the period 
of economic movement from 1871 to 1873. 
Again we have a fall in prices coincident with 
the stagnant and occasionally falling gold pro- 



THE HIGH COST OF LIVING 59 

duction to 1896. Since that time a rise in 
prices occurred which exists to the present day. 
One cannot escape noticing, with the change 
in the production of gold, a corresponding 
change of prosperity and depression involved 
with the change in these phenomena, which 
stands out during the cycle of the industrial 
years. This latter series of changes is the nec- 
essary form of the working out of the capital- 
istic process of production; the individual 
phases of this series must repeat themselves at 
regular periods of time. The first change on 
the other hand depends on a series of accidents 
and makes no series, its diiferent phases are 
not bound up in a given recurrence. Bo^th 
movements are in their origin independent of 
each other, but they cross, intermingle and in- 
fluence each other in a most complicated fash- 
ion. The progress of gold production is of 
great significance for shaping the industrial 
crisis cycle. If the development of gold pro- 
duction stands still or becomes less, the periods 
of trade activity become shorter and continually 
less energetic. On the other hand, the periods 
of crisis grow longer. This acquires a tend- 
ency to take on a chronic character. This hap- 
pened in the two decades after 1873. It is 
quite otherwise in the older period of develop- 
ing gold production. The prosperity that it 
produces does not abolish the crisis, but it 
lengthens the periods of trade activity, makes 



60 THE HIGH COST OF LIVING 

them more energetic, while it shortens the peri- 
ods of crisis and depression and makes the ter- 
mination of them easier. This is the picture of 
the industrial cycle of the last two decades. 



Ill 

THE CIRCULATION OF MONEY 

We must now consider the question — how 
is it possible that changes in the condition of 
the production of gold 'make such tremendous 
changes in the entire economic life, seeing that 
the production of gold, as compared with the 
entire body of production in the world is only 
an insignificant factor? The entire annual 
production of gold is to-day about two billions 
of marks ; Varga calculates the entire value of 
the world's products at 124 billions. There- 
fore the ratio of gold produced is about one 
and one half per cent, of the total product. 
This is quite an insignificant factor. 

Gold production seems to be small. But 
does the operation of the law of value on a com- 
modity depend upon the relative position of 
that commodity to the total product ? Why 
should gold be an exception? Is it because it 
is a commodity of a different kind? 

There are differences that cause changes in 
the production of gold to have a greater signif- 
icance for economic life than the proportion of 
its amount to the amount of the total product 

would lead one to expect. 

61 



m THE HIGH COST OF LIVING 

One of the distinctive features of the com- 
modity, money, we have already examined. It 
consists in this, that it is a commodity which 
has a use value for everyone under all condi- 
tions, as Varga announces in his statement that 
the central banks regularly corner gold. 

But the money-commodity is not differenti- 
ated from all others only in this respect. There 
is another very substantial difference. If 
we ignore the factor of transportation, which 
merely obscures but does not alter our present 
problem, goods merely make a trip through the 
market, they change their owners, leave the 
market, cease to be commodities and are sooner 
or later consumed. The producer sells them 
to the consumer ; they play no further role in 
the market for commodities. 

It is otherwise with gold. Once on the mar- 
ket it does nqt leave it. Its movement inside 
the capitalist mode of production is therefore 
a double one. Some of the money is spent as 
revenue, as the income of capitalists and wage 
workers, for the satisfaction of their personal 
needs. In this way the money expended does 
not return to its original source. Another por- 
tion of money is expended as capital by the cap- 
italists, either for the forwarding of their own 
undertakings, or as loans to entrepreneurs. 
This money has the distinctive quality of re- 
turning to its original source, with an increase. 
Diverse as these two different forms of the 



THE HIGH COST OF LIVING 63 

movement of money may be, they are constantly 
at work on the market. Disregarding waste, 
there is an unceasing process by which goods, 
once bought by their consumers, become means 
of production or consumption and are eternally 
withdrawn from the market. 

It therefore does not happen that the yearly 
production of gold is set off against the yearly 
production of wares, and that the significance 
of the former can be measured by comparison of 
its size with that of the latter. The yearly 
production of gold, on the one hand, produces 
a much greater demand for commodities than its 
mere size would imply since the^yearly produc- 
tion of goods is withdrawn from the market, in 
the course of the year, to make way for new 
products, while the mass of money which caused 
the mass of goods to circulate remains on the 
market, increased by the year's gold product. 

Let us take an example of simple reproduc- 
tion, that is, when the same amount of goods 
are produced, year by year. Here the pro- 
duction of new money would be entirely super- 
fluous, if we disregard the insignificant amount 
required to make up for wear and tear of coins, 
jewelry, vessels, watches, and the like, with 
which we are not at present concerned. The 
yearly production of wealth would be so im- 
mense, and the yearly production of new gold 
for the making of money so diminished, that the 
increased demand for commodities would come 



64 THE HIGH COST OF LIVING 

into conflict with the static supply, and there 
would be a rise in the price of goods which 
would soon put an end to the production of gold. 

Ignoring the industrial use of gold, and con- 
sidering general production as static, gold must 
be reproduced in growing amounts from year to 
year in order to keep at the same value. 

If one wants to compare the yearly produc- 
tion of gold with the yearly production of 
commodities, it would not seem that the annual 
production of gold is comparable with the mass 
of commodities produced in the same year, ex- 
cept by ignoring the amounts of gold hoarded 
or consumed industrially, and comparing the 
balance with the increase in the production of 
goods in the year under consideration over the 
preceding year. When this is done the yearly 
amount of gold produced ceases to appear as 
a vanishing amount in the world product. 

It is impossible, under the present state of 
statistics, to calculate the yearly world-pro- 
duction of commodities, but merely as an illus- 
tration we can take the figures of the world 
trade, which are larger every year, and we can 
deduce therefrom that they grow in the same 
measure as the increase in production. The 
total trade of the world in 1910 was about 146 
billions of marks. This number is double what 
it should be, as what appears as exports from 
one country appears also as imports into an- 
other. It must be halved. So that in the year 



THE HIGH COST OF LIVING 65 

1910 the world's trade was in the neighborhood 
of 73 billions. In the year 1902 the world's 
trade was about 48 billions. From 1902 to 
1910 there was an increase of 25 billions, about 
three billions a year on the average. Varga 
reckons the world production to-day at 124 bil- 
lions, a little less than twice the present world 
commerce. If we put it at twice the amount of 
world commerce we put it very high. We can- 
not put the yearly increase in world produc- 
tion at higher than six billions a year. Over 
against this is a yearly gold production of two 
bilHons, a third. 

We are here, as we have said, simply calcu- 
lating, and not making new illustrations, and 
so we reach these figures. 

That the significance of the annual produc- 
tion of gold is quite other if it is compared with 
the yearly increase in production and not with 
the standard of the total yearly production is 
perfectly clear and needs no proof. But it 
cannot be denied that the proportionate signif- 
icance of gold production may be made too 
much of by this comparison, as the figures fur- 
nished are quite uncertain. 

So we do not make use of a comparison of 
the yearly increase in the world's trade or the 
world's production with the yearly production 
of gold. We know already that things are not 
so simple as appears according to the quantity 
theory of placing the mass of gold on one side 



66 THE HIGH COST OF LIVING 

and the mass of commodities on the other, and 
saying that price is a comparison between the 
two. 

The market demand depends not merely on 
the amount of gold which comes with it, but also 
on the speed with which it changes hands. The 
total amount of gold will produce quite differ- 
ent effects where it makes a purchase ten times 
a year, than where it makes one only twice. A 
hundred marks will in the first case create a de- 
mand of a thousand marks a year, in the second 
case of only two hundred. 

The increased demand for goods which arises 
from an increase in the production of gold is a 
very significant factor in establishing the to- 
tal demand and the total amount of production, 
but it is not the only factor that works to that 
end. 

Are there any peculiar circumstances in the 
course of the last twenty years which have 
tended to develop or weaken increased gold pro- 
duction? 

We know already that the intensity of these 
conditions depends upon the speed of the circu- 
lation of commodities, a speed which, again, 
is dependent partly upon technique and partly 
upon economic causes. Means of transporta- 
tion play a great role in this respect. Its late 
great developments require no demonstration. 

A further movement, increased by the speed 
of circulation of commodities, is the use of 



THE HIGH COST OF LIVING 67 

money as a means of payment. Up to this 
point, we have proceeded upon the statement 
that commodities always exchange for money, 
that is are sold for a cash payment. But at 
another stage in the circulation of commodities 
other tendencies exist which allow me to buy 
another man's goods and not pay until I have 
sold my own goods and got my money for them. 
I buy the other man's goods for a mere under- 
taking to pay, the carrying out of which will 
occur at some future time, three or six months 
hence. It is clear that the circulation of goods 
can be accelerated very much in this way. It 
is true that when I make my final payment I 
again use money. But when numerous ac- 
counts are concentrated at a single point in the 
money relations it soon happens that ihej may 
offset each other and they can be canceled with- 
out any real money passing. However, one 
cannot at his pleasure separate very far from 
the metal money in circulation which remains 
steadily the foundation of payments. This is 
so because all obligations to pay are not of the 
same nature. He who has only to 'pa.j and has 
nothing to demand, or who has more to pay 
than he has to demand, must paj^ cash. Be- 
sides all this mechanism of obligation and off- 
set militates against disturbance and tends to 
produce entire tranquillity in the circulation of 
commodities, which comes all the more easily 
the less the present stocks of gold are able to 



68 THE HIGH COST OF LIVING 

equalize the payments due. Business based 
on promises to pay and their offsets cannot 
therefore make cash money superfluous. But 
if we have up to the present discovered that the 
extension of the production and circulation of 
goods under similar circumstances produces a 
corresponding increase in the amount of gold 
in circulation, we now learn to know the other 
side. The more solidified and concentrated the 
obhgations to pay, the more offsets there will 
be, and the less real gold is needed for the en- 
tire circulation of goods and the less can the 
existing mass of gold come within the circle of 
the circulation of commodities. The mass of 
gold declines not absolutely but relatively; the 
scope of the circulation of commodities can grow 
more rapidly and does grow more rapidly than 
the mass of money. The economic effect of the 
existing mass of gold will be increased, and 
thereby the impetus towards demand which ev- 
ery additional mass of gold lends to the pro- 
duction and circulation of commodities is 
strengthened. 

It is well known that a great extension of 
the mechanism of credit has taken place in the 
latter decades. 

Just as important are the conditions of the 
market. They, too, have been particularly fa- 
vorable during the last twenty years. With 
the growth of the mass of gold and impelled by 
it, as we have seen, an era of prosperity has 



THE HIGH COST OF LIVING 69 

occurred in which the circulation of goods has 
been tremendously developed, and by which the 
fact of increased masses of gold has still more 
fully developed demand. The rapidity of the 
circulation of goods takes place as a result of 
increased gold production, not in opposition to 
it. It works in harmony with and intensifies 
its tendencies. 

And the same has occurred w^ith reference to 
the other conditions w^hich influence the degree 
of the production of gold. 

Not the whole product of the gold mines is 
converted into money. A portion enters in- 
dustry as raw material and becomes not money, 
but goods. This portion develops no demand 
for commodities, it is itself a commodity which 
seeks a purchaser and will be exchanged for 
money. The greater the portion of the annual 
gold yield used industrially, the smaller the por- 
tion which will be made into money, and pro- 
portionately smaller, conditions being equal, 
the effect of gold production on the condition 
of the market and the rise in prices. 

But that does not in the least imply that in 
the last twenty years a change has occurred 
which has lessened the share of the annual gold 
production converted into money. Quite the 
contrary. 

Before the arrival of the production of com- 
modities the working of gold and the money 
metals into articles of use was naturally their 



70 THE HIGH COST OF LIVING 

only use. This was predominant also at the 
beginning of the production of commodities. 
The function of gold as money proceeds from 
this, in that it has everywhere a desired use 
value, which is not transformed into use,. The 
collection of gold and silver jewelry and utensils 
is, in the form of simple production, no mere 
luxury, but also a form of collecting treasure. 
The capitalistic method is the first to trans- 
form money into capital which brings profit, so 
that every piece of gold which one does not use 
as money is regarded as lost. So that the in- 
dustrial employment of gold thus becomes ex- 
ceedingly limited. 

To-day the opening of new regions, partic- 
ularly in Asia, with its precapitalistic method 
of production, goes on apace. That means 
nothing else than that the process of transform- 
ing the industrial use of gold Into the money 
form is being accomplished. 

There is a tendency against this on the other 
hand, namely, the increase in the exploitation 
of the proletariat, the increase In the mass of 
surplus value, and at the same time of the fund 
for consumption and of the revenues of the cap- 
italists, which increases this demand for arti- 
cles of luxury. But the capitalist does not live 
in a style so luxurious as to diminish the money 
commodity, the life-giving blood of the capital- 
istic body. 

Finally, there is still another movement to 



THE HIGH COST OF LIVING 71 



be observed. Gold as money is capable of 
indefinite employment and extension. Gold 
worked industrially is on the other hand a com- 
modity whose sale is dependent upon desires 
which can for the most part be estimated by 
custom and are not quickly changed. A sud- 
den extension of gold production will increase 
its use for industrial purposes less than its use 
for money, and on the other hand a diminution 
in the production of gold will diminish the quan- 
tity used for industrial purposes, less than that 
used as money. 



Gold Production 


Industrial 


Percentage 


Value in millions 


use of gold 


of in- 




of dollars 


in millions of 


dustrial use 


Year 




dollars 


of gold 


1890 ... 


. 119 


50 


42.0 


1891 ... 


. 131 


50 


38.5 


1892 ... 


. 147 


50 


34.0 


1893 ... 


. 157 


51 


39.5 


1894 ... 


181 


53 


29.2 


1895 ... 


199 


59 


29.6 


1896 ... 


202 


60 


29.7 


1897 ... 


2S6 


60 


25A 


1898 ... 


2S7 


66 


22.9 


1899 ... 


307 


73 


93.8 


1900 .... 


255 


76 


99.7 


1901 ... 


261 


79 


30.9 


1909 ... 


297 


76 


25.6 


1903 ... 


S2S 


75 


99.9 


1904 ... 


347 


78 


22.5 


1905 ... 


380 


r 


94.4 


1906 ... 


403 


93 


93.0 


1907 ... 


413 


97 


93.4 


1908 ... 


U2 


89 


90.1 


1909 ... 


454 


101 


22.2 


1910 .... 


45^ 


119 


94.6 



72 THE HIGH COST OF LIVING 

All these considerations lead to the belief that 
the use of gold as money has developed in the 
last twenty years more than gold production 
itself. 

The statistical proof of this is not easy to 
furnish, since, for this purpose, one must have 
the figures for the different kinds of use of gold 
in the world. There being none such, we are 
driven to estimates. These, however, substan- 
tiate our expectations based on the theoretical 
hypothesis. 

Neumann Spallart has reckoned the gold pro- 
duction for the years 1881 to 1885 at 746,000 
kilogrammes, of which the greater portion, 
424,000 kilogrammes, was destined for indus- 
trial use in the lands of capitalistic civilization. 
Soetbeer came to the same conclusion. The 
already frequently quoted report of the director 
of the United States Mint investigates the in- 
dustrial employment of gold for every year 
since 1890; I have reckoned according to his 
figures the percentage of the amount of gold 
annually produced which is employed industri- 
ally. 

Industrial use, therefore, grows unquestion- 
ably, but not at the same rate as the general 
production of gold. At the beginning of the 
eighties it was still the larger half, in 1890 
still more than two-fifths, in 1907 only one- 
fifth. Since that time it has grown, a little, 
to one-fourth. While the production of gold 



THE HIGH COST OF LIVING 73 

has quadrupled, the industrial use of gold has 
only doubled. We can see that it has a much 
more conservative tendency than the produc- 
tion of gold. It increased in 1900 and 1901 
as it did earlier though at that time the Boer 
War conspicuously diminished the production 
of gold. In recent years the speed of gold 
production increased, but on the other hand its 
employment in industry showed no accelera- 
tion so that its proportion to the total produc- 
tion since 1908 remains about the same or even 
not so much as in 1900. 

The proportion of its use as treasure or as 
circulating coins is no less important as re- 
gards the economic conditions of the annual 
production of gold, than the proportion of its 
use as industrial raw material or money. 

At a certain stage it rests with the owner of 
money whether he will spend his money and 
thereby create a demand for goods or put it in 
his pocket and pile it up in his chest as treas- 
ure. The more that he does the latter just 
so much the less will the existing amount of 
gold stimulate the demand for commodities and 
raise prices. 

Thus it does not depend altogether upon the 
wish of the owner of gold whether he will spend 
his money or not. It is an economically nec- 
essary tool. When the workman gets his wages 
he must spend his money or go hungry, however 
much the bourgeois economist may urge him to 



74 THE HIGH COST OF LIVING 

save. Even the entrepreneur has no freedom 
of choice as to whether he will spend the money 
which he pays to-day for commodities or save it. 
He must, like his workman, expend some to get 
the means of life. He must dispense another 
portion for tools and raw materials and wages 
and he must keep on producing and bringing 
new goods into the market if he is to keep on 
living. 

The necessity of the rapid spending of money 
received is, on the whole, much less in the sim- 
ple than in the capitalistic method of produc- 
tion, because where the former is dominant it is 
not the general method, but appears as an at- 
tendant circumstance to the predominating sys- 
tem of natural exchange. If the peasant for 
the most part produces the goods which he con- 
sumes, the artisan for the most part does some 
farming. Taxes paid to the government are 
mostly paid in natural products. The com- 
pulsion to spend money, gold or silver, for the 
consumption or for the development of produc- 
tion is not so great as in the capitalistic method 
of production; on the other hand, the possibil- 
ities of the profitable laying out of money are 
less. Still, the control of the money metal, 
even at that stage, gives great power. Hence 
under primitive conditions there is an eagerness 
to pile up treasure in the form of vessels arid 
ornaments which can be converted into money 
or in the form of actual cash. 



THE HIGH COST OF LIVING 75 

These are two ways of getting possession of 
such treasure, the one peaceful, by the exchange 
of goods for money which one does not spend, 
the other, the forcible one of robbery. In sim- 
ple production the first method is as a rule slow 
since in simple production, the surplus which 
a man can get by his labor is small. Not only 
the worker but the man who robs him under 
such circumstances gets only the small sums 
saved. Plunder is quite different. The strong 
may get the accumulated treasures of numer- 
ous plunderers and accumulate great riches. 

Under capitalistic conditions the reverse is 
true. The productivity of labor has so in- 
creased that the sui'plus which a single laborer 
produces over and above the cost of his main- 
tenance is quite an item. At the same time, the 
opportunities for individual exploiters to get 
more and more from the workers are continu- 
ally more numerous. By peacefully buying la- 
bor power it is possible to make an indefinitely 
large Income. 

In proportion as capitalism grows, the 
power of the state also grows, security of prop- 
erty grows, and the chance of getting treasure 
b}" violent means is diminished. Thereupon 
there comes change in the moral estimation of 
the two methods. 

In the period of simple production of com- 
modities the peaceful accumulation of treasure 
was despised as miserliness. Booty obtained by 



76 THE HIGH COST OF LIVING 

valor in war was highly regarded. To-day, he 
who relies on his personal physical prowess is 
considered a criminal, and the capitalist is 
highly respected who gets billions from the over- 
worked and underfed workers. 

Marx once justly remarked that theft is no 
method of production. But it has long consti- 
tuted a strong economic factor, particularly 
where it has been carried on, not by individual 
highwaymen, but by the armies of whole na- 
tions. By war and plunder immense masses of 
money can be transferred from one country to 
another. In the sixteenth and seventeenth 
centuries enormous amounts of the precious 
metals overflowed Europe and caused a revolu- 
tion in prices, but the discovery of very rich 
finds in America, of which we have already 
spoken, was only one of the causes thereof. The 
other, at times more important than the real 
cause, was the plundering of great treasures of 
gold and silver which had been piled up by the 
labor of centuries in certain places of the newly 
discovered districts. 

If gold and silver production in South Amer- 
ica depopulated Spain and reduced its indus- 
trial labor power, as we have already shown, it 
only lasted for the short time that the Span- 
iards were miners in America. The miners in 
the Spanish colonies were not the descendants 
of natives of the mother country, but were na- 
tive Americans. But the occupying and mas- 



THE HIGH COST OF LIVING 77 

tering of the colonies, the plundering and the 
division of the booty, cost so manj^ men that 
the rich stream of golden metal obtained in this 
fashion resulted in a diminution of industry 
and destroyed it, rendering it unfruitful. 

We find numerous similar examples in the 
simple production of commodities. The most 
conspicuous example is furnished by ancient 
Rome, into which flowed the gold and silver 
treasure of the whole world. But they caused 
no extension of new industry in Italy. They 
flowed off* after the most highly developed in- 
dustries of the countries which profited thereby 
in the last instance. Roman spoliation de- 
prived Spain and Gaul of their gold, not to hold 
it, but to buy Asiatic luxuries with as much 
of it as was not needed for the payment of Ger- 
man mercenaries. 

After Rome's power in arms was gone and 
its ability for fresh spoliation came to an end 
it quickly grew poor in precious metals. 

It is quite otherwise if such treasures as have 
been collected under the precapitalistic indus- 
try are brought by robbery into states in which 
the capitalistic industry has been established. 
Then they become a means of developing these 
more quickly than the mere development of gold 
production would permit. The precious metals 
of Spain, gained in America, came by means of 
trade into France, England and Holland, so far 
as they did not get into the hands of the people 



78 THE HIGH COST OF LIVING 

of these countries by piracy. Again the spoH- 
ation of the East Indies was the means of bring- 
ing a vast amount of treasure into England. 
The Indian manufacturers of luxuries had ever 
since the time of the Roman Empire exchanged 
uninterruptedly their wares for gold and silver, 
and the Indian lords had for one and a half 
thousand years steadily piled up the money re- 
ceived into mighty treasuries which were now all 
at once brought back to Europe. 

When Clive by the battle of Plassey, 1757, 
founded British power in the East Indies, the 
treasures of Bengal were as Macaulay describes 
exposed before him. 

The Reformation and the French Revolution 
also transferred the gold and silver obtained 
from the plunder of churches and monasteries 
into money. 

These methods of spoliation which created 
masses of circulating money out of the treasures 
and which thereby, by extending the demand for 
commodities, were a factor in establishing the 
capitalistic method of production, have ceased 
in the course of the nineteenth century. This 
is not because respect for the property of a 
nation defeated in war has increased, but be- 
cause all the great stores of treasure to be 
found outside the capitalistic method of pro- 
duction have been plundered. 

An affair like the spoiling of Pekin in the 
Boxer rising is insignificant since all it brought 



THE HIGH COST OF LIVING 79 

was a little pocket money to the robbers. 

Big money indemnities today pass from one 
nation to another, the largest of which was the 
war indemnity which France had to pay Ger- 
many, in 1871. The five French billions gave 
a colossal impetus to German industry, but 
the mass of money which circulated in the world 
market was not much increased thereby. On 
the other hand French loans served to set in 
circulation the existing hoards of money. 

The old method in any case transferred 
treasures of the precious metals got by plunder 
into circulating money. Today this tendency 
is less and steadily diminishing. 

In proportion as this method declines, on 
the other* hand, the more does the peaceful cap- 
italistic method draw the money treasures from 
their hiding places and throw them into the 
stream of circulation. 

If the simple method of producing commodi- 
ties develops a tendency towards the measure- 
less storing of gold and silver, the capitalistic 
method of production produces a hunger for 
gold by means of a hunger for profits. Masses 
of idle treasure in money are now regarded as 
the sin against the Holy Ghost of capitalism. 
The first duty of the possessor of money ap- 
pears to lie iis^ the expenditure of money but 
only for purposes of production, by which the 
capitalist understands making profits. 

But the capitalist dare not place all the 



80 THE HIGH COST OF LIVING 

money he has in the circulation-process of com- 
modities. The production-process itself impels 
him to save some of it. Capitalism creates in 
place of the old eagerness to store up gold and 
silver new conditions and desires for creating 
stores of treasure. 

Let us consider a factory. The machines in 
it cost IOO5OOO marks. Experience shows that 
they must be renewed after ten years' use. In 
order to do this the capitalist must put away 
IO5OOO marks a year for ten years out of his 
income. 

Or let us take the agricultural industry. In 
autumn the farmer sells his crop. But he can- 
not expend the mone3^ received all at once. He 
must cultivate for the next crop, pay wages, 
etc. He must therefore store his money in the 
autumn to pay it out during the rest of the 
year. In other ways also savings for consump- 
tion on a smaller scale and of a less tangible 
nature are also necessary. The workman who 
buys a winter coat for fifty marks in the fall 
must set aside two marks a week for twenty-five 
weeks out of his weekly wages. If he gets his 
pay quarterly he must therefore make a 
" hoard." Owing also to the insecurity of his 
position it is in the highest degree advisable for 
him to save a hundred marks or so, so that in 
case of sickness or loss of employment he is not 
confronted by blank destitution so long as he 
has no union or sick benefit fund to protect him. 



THE HIGH COST OF LIVING 81 

The more the capitalist method of produc- 
tion develops and destroys the exchange of nat- 
ural commodities, so much the greater is the 
number of people and households needing a 
greater or less amount of savings. Thereby 
again great masses of gold would be drawn 
from circulation and prevented from developing 
the demand for commodities upon the market. 
But this new tendency is soon overcome and 
destroyed by a stronger one. 

Let us again take the factory, for example, 
say a spinning factory which according to ex- 
perience must buy 100,000 marks worth of 
machinery every ten years and for this purpose 
set aside 10,000 marks a year. Suppose that 
the factory owner has already been saving for 
five years when a neighbor, a brewer, needs 
money to extend his brewery. He borrows the 
50,000 marks from the spinner who lends it to 
him on interest if the brewer undertakes to re- 
pay the loan in five years. All parties are 
helped by this plan. The brewer increases his 
trade and makes twenty per cent, a year on the 
50,000 marks borrowed money, of which he pays 
five per cent, to the spinner. The latter gets 
five per cent, a year and has at the end of the 
ten years the whole of his capital to get new 
machinery. His accumulated store is for a 
portion of the time at least thrown into circu- 
lation and increases the demand for goods. 

This use of savings is evidently only acci- 



82 THE HIGH COST OF LIVING 

dental. Not every Industrial capitalist has the 
time and inclination for such incidental busi- 
ness. The method moreover cannot be used for 
small amounts. 

But in the course of time there arise special 
enterprises, banks, for the purpose of collecting 
moneys of this sort and lending to entrepreneurs 
to start or extend their business. They are 
also a means of advancing state loans, the con- 
sideration of which we may pass hj for the 
present. The collection of manifold greater 
and lesser savings and their conversion to the 
use of the capitalists are carried on by the banks 
as soon as credit is established. 

Even the smallest sums of moneys are in 
capitalistic countries either as savings or shares 
— we called attention to the gold mine shares 
at two dollars each — invested with the expecta- 
tion of earning interest. The expectation is 
frustrated in the matter of shares but there is 
no question about the fact of the transforma- 
tion of savings into- circulating money. 

This development has made rapid strides in 
the last twenty years and has thus supported 
the great effect of the increased gold produc- 
tion upon the market. In a similar direction 
operates the improvement in intercommunica- 
tion which permits a diminution in the amount 
of stocks which merchants need to carry and 
consequently the sums of money which they have 
to collect for that purpose. 



THE HIGH COST OF LIVING 83 

Single banks indeed cannot exist without 
funds. If the outgo never exceeded the income 
at a given time the banking business, as far as 
it fulfills the function we are here discussing, 
could be carried on without any capital. As a 
rule there is an excess of receipts over pay- 
ments made, if not by an individual bank, by the 
banking business as a whole, because the accu- 
mulation of capital and the collection of newer 
additional sums of money goes on uninterrupt- 
edly. 

But there come times of stagnation when the 
movement of money takes an opposite course. 
The crisis comes which is bound up with a great 
mass of unemployment and the workers are com- 
pelled to draw on their savings instead of in- 
creasing them. At the same time those en- 
gaged in industry cannot dispose of their 
stocks. To live and to be able to produce still 
more they must withdraw their bank deposits 
or sell their shares. It is bad for the bank 
which under such conditions has put its capital 
into shares instead of having a stock of gold 
cash which admittedly draws no interest. 

But even in good times periods come in which 
payments crowd and an unusual amount of 
ready money is needed. For such reasons the 
bank must have a large supply of cash in readi- 
ness. 

But however much money the bank must keep 
to meet the sudden requirements and unex- 



84< THE HIGH COST OF LIVING 

pected demands for money, the amount in hand 
is always much smaller than the amount of 
private savings which is taken and transferred 
into circulating money. 

One must not imagine that the total amount 
of money which a bank collects functions as sav- 
ings. The great amount of bank notes form 
an immense amount of money. For example 
according to the report of the American direc- 
tor of the Mint the amount of gold in millions 
of dollars was: 





Bank of 


Bank of 


Bank of 


Bank of 




England 


France 


Germany 


Austria- 


Year 








Hungary 


1889 


.. 87 


346 


60 


26 


1899 


.. 141 


361 


112 


2U 


1910 


.. 151 


633 


159 


261 



But these great masses of gold are only to 
be regarded technically and not economically as 
mere treasure. Technically and economically 
are two very different things, just as is labor 
as a creator of values and as a maker of use 
values, a distinction of the greatest importance 
which Marx discovered but which up to the 
present has had no influence on bourgeois 
economy. 

Money as gold technically remains in the 
bank vaults. But economically it circulates in 
the market in bills of exchange, in notes which 
the bank issues. The gold pieces function in 
the form of notes as money in circulation, in- 



THE HIGH COST OF LIVING 85 

deed the employment of circulating money in 
the form of bank notes is much greater than 
that of the money metal in the banks. 

The report of the American Director of the 
Mint gives the following figures for the 31st 
December, 1910, in millions of dollars: 

Bank of Bank of Bank of Bank of 
England France Germany Austria- 
Hungary 
Amount of gold . . 151 633 159 267 

Circulating bank 

notes 241 1024 391 477 

The same report estimates the amount of gold 
in the great banks of Europe on December 31st, 
1910, at 24<64< million dollars and the amount 
of circulating bank notes issued by them at 
4325 millions. 

The significance of the bank note is pecul- 
iarly technical. It facilitates the transporta- 
tion of very large sums of money. Besides it 
acts as a saving in so far as the gold coins 
lying in the bank are saved from the wear and 
tear of circulation. 

But in addition to this technical function the 
bank note has also an economic function. It 
is regarded as a bank note or not according as 
it is realizable in gold or not. 

The bank may issue notes representing much 
more money than it has treasure in the vaults. 
So long as they are the full representatives of 
the amount of money which they represent they 



86 THE HIGH COST OF LIVING 

fulfill the same functions and are actually of 
the same economic validity as real gold. 

The gold treasure in the bank then serves 
substantially as a reserve fund for unusual oc- 
casions. 

Marx distinguishes as follows: 

1. Reserve funds for international payments. 
In a word reserve funds for world money. 2. 
Reserve funds for the exchange of foreign and 
home-metallic currency. 3. What pertains to 
the function of banking and has nothing to do 
with money merely as money. 4. Reserve 
funds for the payment of deposits and convert- 
ing of notes into money. 

The gold stores of the great central banks 
therefore act quite differently than the private 
hoards which we have hitherto considered. The 
latter diminished the amount of money in circu- 
lation. The store of money in the banks in- 
crease it. The money in the banks grows ever 
more important in the development of the capi- 
talist method of production but the economic 
importance of increasing gold-production is not 
thereby lessened but is immensely increased. 
The more money there is in the bank just so 
much more money is there in general circula- 
tion. 

The tendency to banking has no more influ- 
ence than any of the other factors which we 
have mentioned in weakening the importance of 
the increase in the production of gold. The 



THE HIGH COST OP LIVING 87 

contrary is true. It is true that the measure 
and conditions of gold production are not alone 
in marking the height of the economic effect of 
additional money. But all factors which are 
determinative of it — speed in the circulation 
of goods, the industrial employment of gold as 
an intermediate between hoarding and circulat- 
ing money, finally the introduction of substi- 
tutes for gold in the different functions of 
money and credit, have all developed in the last 
twenty years so as not to weaken but to 
strengthen the influence of the increased pro- 
duction of gold upon economic life and the prices 
of commodities. 



IV 

INCREASE IN PRICES AND POVERTY 

We have seen that the view that changes in 
methods of producing gold are ineffective to 
produce changes in the prices of commodities 
is untenable for the reason that changes of this 
kind are easy to discover. 

We have further noted the process by which 
the law of value operates in the case of gold. 
The mode of operation is simply this, that given 
stable distribution of labor-power in the differ- 
ent spheres of production, increased gold pro- 
duction creates increased demand for goods and 
consequently causes a rise in prices. 

In the first place if the change in prices thus 
produced does not avail to realize the law of 
value for gold and if its production under the 
capitalistic conditions yields an extra profit for 
a considerable length of time, equalization of 
profit rates manifests itself as a regulating ele- 
ment which brings more capital and more labor 
to the gold mines until the equality of the profit 
rate is restored — a law which is somewhat 
modified by the distinctive lottery character of 
gold mining which always tends to keep the 

rate of profit in this industry below the average. 

88 



THE HIGH COST OF LIVING 89 

The rise in prices of commodities which is 
caused by the increase in gold-production may 
under certain circumstances be so large that 
the value of gold is not fully realized in ex- 
change. If the limits which exist owing to the 
admittedly lottery character of gold-produc- 
tion were overstepped, the least productive mine 
would not only not yield any ground rent but 
it would yield no profit whereby to hold capital. 
Then some of the mines would be abandoned 
and capital would leave the production of gold 
until there was an equalization of the profit 
rate. 

The fulfilling of the law of value for gold 
does not fail under all conditions of the move- 
ment of capital, and it may reach a higher price 
owing to improvements in the method of getting 
gold or the discovery of richer gold fields as 
well as a dislocation of capital which militates 
against the gold mining industry. 

Varga is wrong, then, when he says that the 
present rise in prices cannot be the result of 
changes in the production of gold, because, 
through this means, the movements of capital 
are quite unimportant. 

The theoretical possibility that the present 
rise in prices is involved in the rise in the amount 
of gold production seems to be undeniable. 
Another question is if the possibility is the 
actual truth. This can hardly be proved in 
figures in the present state of statistics. But 



90 THE HIGH COST OF LIVING 

all the probabilities are in that direction. I had 
assumed when I began to investigate the ques- 
tion of the rise in prices that the probabilities 
were in favor of the responsibility of gold for 
the rise. Varga's objections however set me 
investigating the question afresh and the more 
I did SO5 the more I was established in my con- 
viction that changes in gold production had led 
to the rise in prices. It would be a real marvel 
if these changes had had no influence. 

But I never said and certainly never main- 
tained that gold is the only cause of the rise 
in prices. 

The whole economic life of capital is reflected 
in the movement of prices. All its intercross- 
ing and its tendencies, now rapid, now stagnant, 
operate on prices. One can and must separate, 
follow up and investigate each one of the tend- 
encies scientifically. In the answer to the 
question of the reason of the rise in prices one 
must be able to present a composite picture of 
these tendencies. 

The rise in prices in the last two decades 
would have corresponded in strength with the 
fall in prices in the preceding decades since 
1873, if the change in gold production were 
alone responsible. In this case, as in the other, 
this would be advanced by another working in 
the same direction. To treat of every other 
movement completely at this time would extend 
the investigation indefinitelj/ and would be of 



THE HIGH COST OF LIVING 91 

little use as they have been considered by other 
writers, including myself, on different occasions 
so that we should have nothing new. A few 
remarks in this regard may however be useful. 

To the factors that caused prices to sink 
after 1873 there belonged in addition to the 
stagnation in the production of gold the im- 
provement in the means of transportation as it 
brought with it in particular the development 
of the trans-oceanic steamships, as well as the 
building of railroads in America and Russia, by 
which great stretches of land up to the present 
exploited but little or entirely unused and still 
to a tremendous extent free from private owner- 
ship came into the closest relations with coun- 
tries where the capitalist system was highly de- 
veloped. This caused a fall in the cost of pro- 
duction of food stuffs and raw materials and 
thus a fall in prices which in its turn was re- 
flected in the prices of industrial products. 

But the same improvement in the means of 
transportation had also brought into intimate 
proximity those lands in which under the spur 
of increased gold production since 1851 the 
capitalistic industry had greatly extended its 
enormous forces of production in England, 
France, Germany and the Eastern portion of 
the United States. The wildest industrial com- 
petition broke out among them after the crisis 
of 1873 which, at times, reduced prices below 
the cost of production. 



92 THE HIGH COST OF LIVING 

The industrial states with the exception of 
England, in order to meet this situation at the 
end of the seventies and in the course of the 
eighties set to work to limit this competition, 
at least, against foreigners, by protective tar- 
iffs. Germany began in 1879 a protective 
tariff which has been continually made more 
stringent, France followed in 1891. In the 
United States there was after 1870 an anti- 
tariff tendency, but a backward movement be- 
gan in 1875 which finally reached an extreme 
with the McKinley tariff in 1890. 

But a protective tariff although it may mo- 
mentarily raise prices, and hold them higher 
than they would be without it, cannot throw off 
the depressing effect of a whole decade of fall- 
ing of prices upon the world market. So the 
industrial capitalists sought a more practical 
means by abolishing competition among them- 
selves and transforming falling into rising 
prices, by the creation of private monopolies, 
through combinations, syndicates, trusts. At 
the outset this was chiefly with respect to locali- 
ties which have a sort of natural monopoly, 
petroleum, but particularly coal and iron, the 
life sources of modern industry. 

These creations began in the eighties, but 
first attained economic Importance In the nine- 
ties, and then quickly started from the begin- 
ning of the present century to get control of 
the whole process of production. 



THE HIGH COST OF LIVING 93 

At the same time the causes which had re- 
duced the cost of production in agriculture 
ceased to operate, so that a rise in prices for 
these took place, afterwards the various capi- 
talistic countries, with the exception of England, 
introduced protection for agricultural products, 
simultaneously with industrial, and thereby in 
their districts had raised prices above those of 
the world market. 

The virgin soil of the newly opened territory 
was, under capitalistic conditions, rapidly ex- 
hausted by imprudent farming. To restore its 
old fruitfulness or to increase it, now required 
tremendous expenditure. In addition in our 
century the freedom from the pressure of the 
private ownership of property is at an end, as it 
existed in American agriculture and by its 
competition reduced European ground-rents. 
Even in America every place has its landlord, 
and can only be built upon if it pays ground- 
rent ; that means if the prices of the local prod- 
ucts are sufficiently high. 

Ground-rent, a mark of high prices of agri- 
cultural products, grows and becomes itself the 
cause of still further increase in those prices. 
Then, although it is surplus value, a portion of 
the excess of price over the cost of production, 
it belongs to the agriculturalist's cost of pro- 
duction. The higher the ground-rent, just so 
much more from the money derived from his 
harvest or his cattle, he must hand over to the 



94 THE HIGH COST OF LIVING 

support of the possessor of land or money, who 
. is of no use in agriculture, instead of accumu- 
lating it as capital for the improvement and 
extension of his business. This happens prac- 
tically today where the landlord is a lease- 
holder. He also feels it where he has to buy 
his place. Every change in possession increases 
the burden of landlordism so much the more, 
the higher the prices of agricultural products, 
and accordingly ground rent. And the more 
this increases the owner of land is correspond- 
ingly transformed into a speculator in land, 
and he sells his place the more readily, and 
change in ownership occurs the more frequently. 
To all these causes of the raising of prices 
a new impetus is given by the emulation in 
armament of the great powers, through world 
politics, which tends to an increase in the mili- 
tary forces both on land and sea. The latter 
proceeds less by means of the increase in the 
number of combatants than by reason of the 
development and growth of the technical appa- 
ratus, which knows no limits and proceeds more 
rapidly than increase in the forces, and thereby 
the waste of productive forces is increased, since 
they are literally thrown into the sea, and the 
burdens of the people are much heavier, as ap- 
pears today in the form of a steady increase in 
indirect taxation, and increasing the cost of 
the means of consumption of the masses. The 
capacity of gold production to raise prices is 



THE HIGH COST OF LIVING 95 

enormously increased by all of these move- 
ments. 

We cannot however believe that each of these 
movements because it raises prices has the same 
influence on economic life as the others. A 
rise in prices can come from two sources, an 
increase in demand or a diminution of supply. 
We have seen how an increase in demand on the 
part of the owner of money operates. It sig- 
nifies more active production, more active circu- 
lation, increased prosperity. Everywhere there 
is an increase in the price of commodities under 
these conditions. If all prices and wages rise 
in the same proportion and do not change their 
mutual relations, the condition of the worker is 
improved in so far as his yearly income, pro- 
duced by steadiness of employment, arising 
from the more rapid development of capital, is 
greater than the rise in price of the commodi- 
ties. 

At the same time, still, the capitalist also 
considerably increases the yearly sum of his 
profits through the rapid movement of capital. 
He cannot consume more, he can only accumu- 
late. 

It appears therefore as if high prices were 
synonymous with economic prosperity, and as 
if the economic task of the state was to see that 
prices are high, which, to be candid, as we have 
seen, it anxiously provides for, by means of 
duties and indirect taxation. 



96 THE HIGH COST OF LIVING 

But there is a difference between high prices 
and high prices. As we have seen, on the other 
hand, there is a rise in prices where there is no 
increase in demand but where there is a limita- 
tion in supply, a bad harvest for example. In 
this case the farmer charges a higher price per 
hundred weight, but the number of hundred 
weights he puts on the market is reduced. His 
total income does not grow. But his own 
family and his laborers have to pay more for 
flour and bread. He and his people have less 
money left over for the products of industry 
than formerly. The same is true of the rest 
of the people. The demand for industrial prod- 
ucts is not increased, very frequently, indeed, 
it is diminished while the cost of living of the 
working class increases so that they must strive 
for an increase in wages. Then a tendency to 
rise in prices of raw material shows itself which 
increases the compulsion to a rise in prices of 
factory products, while the demand for them 
declines as we have seen. If the rise in prices 
succeeds, it must still further cripple the slow 
disposal of goods, and therefore the impulse of 
capital; if the rise in prices does not succeed, 
the prices of the products remain behind the 
raised cost of production. In both cases the 
profit rate sinks, there is, as a result, general 
stagnation and misery among the great masses 
of labor. 

Finally international competition is still to 



THE HIGH COST OF LIVING 9T 

be reckoned with In the question of the economic 
effect of a universal raising or lowering of 
prices. On the world market that nation gets 
ahead soonest which sells cheapest, and this can 
only be done by producing most cheaply. 

Hence the praise of low prices sung bj'- the 
school of free trade. This is not false, but it 
has no absolute, merely a relative, justification. 
But the absolute superiority of high prices 
favored by the tariff is still less justifiable. 
Only under very peculiar circumstances are 
higher prices synonymous with economic pros- 
perity. Under these circumstances, the bur- 
dening of industry with high s^tate taxes, such 
as a system of protective tariffs for all prod- 
ucts, as well as for raw materials and the means 
of life, comes Into existence. 

Generally it may be said that a rise In prices 
which springs from an increase in demand Is 
attended by conditions which signify height- 
ened prosperity, and that on the other hand a 
rise in prices which causes a discontinuance or 
stopping of supply produces the greatest 
misery. 

The results of Increased gold production on 
social conditions are just the opposite to the 
results of the price raising factors here con- 
sidered. Moreover these factors are not all 
simultaneously active in the same proportion. 
If one or the other of them dominated, social 
life would take on another character ; the rise in. 



98 THE HIGH COST OF LIVING 

prices would be welcome as a sign of prosperity 
or detestable as evidence of adversity. 

Since 1894 the effects of gold production pre- 
dominated and made themselves earlier and 
more powerfully felt than the other factors 
which caused increased prices with the excep- 
tion of tariffs which only operated in a tran- 
sitory fashion. Under these conditions there 
arose that view which we call revisionism, that 
theory, that the capitalistic method of produc- 
tion develops tendencies, to continually improve 
the condition of the proletariat, to limit the 
exploitation of it, and so to put an end to all 
the tendencies of misery, without a political rev- 
olution. Just as in the sixteenth century the 
force of Protestantism in Germany, and after 
1848 of Chartism in England was weakened 
through the increase in the production of gold, 
so the revolutionary spirit of the entire work- 
ing class was weakened throughout the capi- 
talist system. But only briefly on this occa- 
sion. 

The answer to this question depends very 
closely upon the expectations which we enter- 
tain of gold production. 

The speed of its growth since 1890 may be 
found in the table. 

It can be seen that the fact of the yearly in- 
crease in gold production is significant if we 
omit the time of the Boer War and its results 
(1899, 1900 and 1901). In 1897 in particu- 



THE HIGH COST OF LIVING 99 





Production 

in thousand 

kilo. 


Addition over 
former years 


Yea-r 


Absolute 

in thousand 

kilo. 


Per 
cent. 


1890 

1891 

1892 

1893 

1894 

1895 

1896 

1897 

1898 ... 

1899 

1900 

1901 

1902 ....... 

1903 

1904 

1905 

1906 

1907 

1908 

1909 

1910 

1911 


179 
196 
221 
237 
273 
299 
304 
355 
432 
462 
383 
393 
446 
493 
523 
568 
605 
621 
666 
683 
684 
703 


*i7 

25 
16 
36 
26 

5 
51 
77 
30 
79 
10 
53 
47 
30 
45 
37 
16 
45 
17 

1 
19 


* 9.4 

12.7 

7.2 

15.1 

9.6 

1.7 

16.7 

21.6 

6.8 

17.1 

2.6 

13.5 

10.5 

6.0 

8.7 

6.5 

2.6 

7.3 

2.5 

0.1 

2.8 



lar and 1898 the figures climbed rapidly owing 
to the discovery of the Alaskan gold fields. 

But since 1905 the percentage of the yearly 
product rose rapidly with the exception of 1908. 
The progress of the figures of amount of gold 
taken from single great regions of gold pro- 
duction is shown on pages 99 and 100. 

In Australia therefore gold production has 
already begun to decline, in 1903 it reached its 
highest point. Since then it has fallen from 89 
to 64 million dollars. 

In the United States it already appears to 
have reached its maximum. Since 1906 it has 



100 THE HIGH COST OF LIVING 

GOLD PRODUCTION IN MILLIONS OF DOLLARS 



Year 



1890 
1891 
1892 
1893 
1894 
1895 
1896 
1897 
1898 
1899 
1900 
1901 
1902 
1903 
1904 
1905 
1906 
1907 
1908 
1909 
1910 
1911 





United 


Aus- 


Africa 


States 


tralia 


10 


33 


30 


16 


33 


31 


24 


33 


34 


29 


36 


36 


40 


40 


42 


45 


47 


45 


45 


53 


44 


59 


57 


53 


80 


64 


65 


73 


71 


79 


9 


79 


73 


9 


79 


77 


39 


80 


82 


68 


74 


89 


86 


80 


88 


113 


88 


86 


135 


94 


82 


152 


90 


76 


167 


95 


73 


171 


100 


71 


175 


96 


65 


191 


96 


64 



Other 
coun- 
tries 

41 

50 

55 

57 

60 

63 

61 

67 

77 

83 

94 

-.99 

96 

97 

92 

93 

90 

95 

108 

112 

118 

125 



made only an insignificant advance. The fall- 
ing off from 1910 in comparison with 1909 has 
been more evident in 1911. The new figures 
shown for 1909, 99,673,400 dollars ; 1910, 96,- 
269,100 dollars, and 1911, 96,233,000 dollars. 

In South Africa gold production now makes 
enormous strides. There is however no exten- 
sion of the gold district, but a more complete 
exploitation of the existing stores at present 
which must consequently be all the more rapidly 
exhausted. 

The Director of the Mint quotes a Johannes- 
burg correspondent of the Engineering and 
Mining Journal, who says, " We are still far 
from being able to judge what the year 1911 



THE HIGH COST OF LIVING 101 

means for the history of Rand Mining. It ap- 
pears as if the best portion of the profitably 
worked ore on the mine was exhausted, as if 
mining here had reached the maximum output 
in a few years, and as if it had almost attained 
the maximum profit, if it has not already gone 
beyond it. In a few years we shall see many 
famous mines exhausted, like the Jubilee, the 
Salisbury, the Champ d'Or which produced 
nothing this year." 

There remains now only the gold of " other 
countries," particularly Canada, India, Mexico, 
Russia. From Russia the Engineering and 
Mining Journal for 1911 reports a falling off 
in production from 4'3.2 to 40.6 million dollars, 
from Mexico from 24.1 to 19.5 million, from 
India from 12.1 to 10.5 million, from Canada a 
slight increase from 10.2 to 10.6 million dollars. 
In the meantime the gold production of the 
most important district of Canada, the Yukon 
district, has for several years lost its earlier 
significance. The production of gold in the 
Yukon district has been in millions of dollars 
since 1896: 

1896 0.3 1903 12.3 

1897 2.5 1904 10.5 



1898 10.0 

1899 16.0 

1900 22.3 



1905 7.9 

1906 5.6 

1907 3.2 

1908 3.6 



1901 18.0 1909 3.9 

1902 14.5 1910 4.6 



lOa THE HIGH COST OF LIVING 

Certainly a failure of the hitherto well known 
gold fields of the world in the sense that they 
yield absolutely no more gold profitably is not 
to be soon expected, but it is just as little to 
be expected that a development of the rapid in- 
crease in production at the rate of that from 
1892 to 1905 will be maintained. It is of 
course not impossible that gold fields as rich 
as those in British South Africa wdll be discov- 
ered, but the probability of it grows continually 
less. 

Gold has from time immemorial so aroused 
the desire of men that they have always sought 
it with the greatest eagerness. The discovery 
of gold fields no longer occurs in lands of de- 
veloped civilization but only in the wilderness, 
newly discovered and for the first time acces- 
sible ; at first, in the sixteenth century in Span- 
ish America, then in Brazil where in 1680 mines 
were opened in Minas-Geraes. In Russia gold 
was found in the Ural Mountains in 1743, the 
discovery of Siberia was made known at the be- 
ginning of the nineteenth century with the gold 
fields there. In the middle of this century 
there follows as we have already said the dis- 
coveries in California and Australia, and at the 
end of the century those in South Africa and 
Alaska. There are yet, as we see, uncultivated 
districts in which new gold fields are to be 
found. But capitalistic civilization continu- 
ally embraces the world; with giant strides it 



THE HIGH COST OF LIVING 103 

opens one place after another. Undiscovered 
lands capable of yielding gold became scarcer 
year by year. The number of places capable 
of surprising by new extraordinary gold dis- 
coveries, and by means of a new capital prize* 
of putting bankrupt capitalism on its feet again 
becomes always smaller. 

There exists a possibility of a wider exten- 
sion of gold production, through the extraor- 
dinary technical advance, which has rendered 
possible the exploitation of well known gold 
fields with the expenditure of less labor power 
than hitherto or has obtained a greater amount 
of product with the same expenditure of labor 
power. This possibility is undeniably very 
probable in our times of unbroken technical 
revolution. But nothing justifies us in the 
opinion that this advance will proceed more 
rapidly in mining than in other branches of 
production. It would seem rather that, in view 
of the increasing difficulty of getting gold, re- 
sulting from the exhaustion of the upper strata 
and the necessity of going continually deeper, 
it will suffer so many obstacles that the rate 
of addition of the amount of gold obtained, 
even if maintained, will be kept within the av- 
erage of the last twenty years. And hence we 
arrive at this conclusion: if gold production 
operates as a means of advancing prosperity, 
then it is not enough if it continue merely in 
the same measure as at present, or in a lessened 



104 THE HIGH COST OF LIVING 

degree. It must grow manifold and without in- 
terruption. 

The capitalistic method of production itself 
develops the compulsion, the necessity not only 
of not standing still but also of a continual ex- 
tension, in the proportion in which the accumu- 
lation of capital increases year by year, and, 
at the same time, the technique, the means by 
which the product of a given amount of labor 
power is continually increased. The break of 
this both through the increased productivity 
of labor as v/ell as through the increase of cap- 
ital brings enormous masses of products, the 
consumption and the progressive production of 
which, and, hence, social prosperity, depends 
upon there being an increase in demand com- 
mensurate with the increase in these factors, 
that is to say under these same conditions, 
upon an increase in the mass of money. 

This is true only when conditions are the 
same. These may alter and the mass of gold 
once again be as at other times of compara- 
tively small economic account. 

But there is no ground to declare that they 
do not make for the necessity of an increase in 
the production of gold. The quicker or slower 
circulation of money is closely connected with 
the general advance of the process of produc- 
tion, it increases in times of prosperity, it di- 
minishes in times of crisis. Nothing justifies 
us in expecting that a falling off in gold produc- 



THE HIGH COST OF LIVING 105 

tion will continue with increasing prosperity 
and that a smaller addition of gold will produce 
better results by more rapid circulation. 

It is possible that in the Orient, particularly 
in Egypt, India and Cliina, there is still much 
hoarded gold, which by the advance of capital- 
ism, particularly of the banking system, might 
be transferred into circulating, demand-pro- 
ducing money. 

We have already seen how the Orient, since 
the close of classic times, has continually re- 
ceived amounts of gold and silver which it has 
withdrawn from circulation and hoarded. 
These treasures have been plundered from time 
to time, but its foreign trade, the exports of 
which always exceed the imports, always per- 
mits of the collection of new treasures. 

The "Bulletin of General Statistics of 
France " in its July number gives a table 
which shows well the economic rule of India. 

According to the figures of trade balance, In- 
dia must be continually getting richer, since 
the excess of exports grows strongly and unin- 
terruptedly. But the lion's share of this sur- 
plus goes without any diminution to England. 
So long as this surplus is not offset by the im- 
portation of precious metals, it comes under 
the head of British exploitation of India, and 
yet the hoard of precious metals increases. It 
produces gold (1910 — 17,826 kilo, value 22 
million pounds sterling), and it still imports 



106 THE HIGH COST OF LIVING 



Year 



1835 to 
1840 '* 
1845 ♦* 
1850 ** 
1855 " 
1860 ♦' 
1865 ♦' 
1870 " 
1875 " 
1880 " 
1885 " 
1890 " 
1895 '* 
1900 " 
1905 *• 
1910 
1911 



1839 
1844 
1849 
1854 
1859 
1864 
1869 
1874 
1879 
1884 
1889 
1894 
1899 
1904 
1909 





Goods 






o 


A- 


OQ 


S«2 


B ^ 


« f-< 


& o u 


fH O 


H o 


'^t*^ o 


■^ P* 


*^ Cu 


^bp. 


118 


264 


146 


183 


328 


145 


217 


373 


156 


263 


453 


190 


371 


593 


222 


571 


1003 


432 


754 


1330 


576 


786 


1339 


553 


843 


1324 


481 


1035 


1631 


596 


1138 


1682 


504 


1200 


1779 


579 


1121 


2635 


514 


1423 


2099 


676 


2015 


2872 


767 


2062 


3158 


1096 


2248 


3519 


1271 



Precious Metals 



Gold 
im. 



Silver 
im. 



Excess over 
export 





50 




55 




42 


27 


63 


60 


187 


140 


242 


139 


237 


73 


86 


15 


140 


85 


128 


58 


165 


39 


206 


38 


95 


104 


138 


157 


284 


365 


159 


403 


146 






96 

90 

114 

100 

25 

50 

200 

94 

326 

383 

281 

334 

381 

434 

326 

572 

722 



precious metals to the amount In round numbers 
of 500 million marks. In a lecture before the 
East India Association, Sir James Wilson put 
the excess importation of gold in India since 
1890 at five billions of marks, a tenth of the 
world-production of gold in that period of time. 

Similar, if not so great, is the collection of 
gold treasures in Egypt. 

It is quite impossible to reckon or even to es- 
timate how much of the imported gold is used 
for industrial purposes, how much remains coin 
or is minted, or how much of it goes into circu- 
lation or is stored as treasure. 

Foreign trade of Egypt. Yearly average in 
millions of francs: 



THE HIGH COST OF LIVING 107 









Goods 




Precious Metals 


Year 


02 




Balance 
of ex- 
ports 


Gold Silver 
im. im. 






Excess over 


Mo^ 






227 






export 




1890 to 1894 . . 


363 


136 


18 





118 


1895 


* 1899 . . 


262 


375 


113 


41 


2 


70 


1900 


' 1904 . . 


418 


517 


100 


70 


5 


25 


1905 


' 1909 . . 


610 


680 


70 


51 


5 


14 


1909 




569 


737 


168 


14 





154 


1910 




603 


829 


226 


151 


1 


74 



The custom of using precious metals for jew- 
elrjj or collecting them as treasure, Is still 
strong In every country. The director of the 
American Mint In 1909 asked the American Con- 
sul General in Cairo, what became of the gold 
that went to Egypt. The Consul related that 
In 1905 the stamp bureau of Cairo had under- 
taken an Inquiry In the gold bazaars which 
showed that In the year, gold to the value of two 
milh'on pounds sterling had been worked up Into 
jewelry. It Is of course Impossible to state ex- 
actly how much of this was newly Imported gold 
and how much old material. 

Certain typical facts which Lord Cromer 
mentioned in a speech In London are worth 
noting : 

" Several years ago I heard of an Egyptian 
who left at his death 80,000 pounds sterling in 
gold coin in his cellar. Then I heard of a cer- 
tain well-to-do landlord who bought property 
for 26,000 pounds sterling. Half an hour 



108 THE HIGH COST OF LIVING 

after the signing of the agreement he appeared 
with a pack donkey, with the money, which 
he had had buried in a garden, on its back." 

It is clear that in the Orient large quanti- 
ties of gold still lie dead, which would be 
brought into circulation under the capitalistic 
system. But this process is not just begin- 
ning, it has been vigorously pressed for the 
last two decades. If it is to offset a dimin- 
ished gold production it must not only go fur- 
ther, but at a swifter rate than hitherto. There 
is no justifiable expectation of this. 

We must expect this process to be more 
slow also, as in the case of the unexplored dis- 
tricts, therefore the places in the Orient still 
closed to capitalism, which can furnish hith- 
erto unused treasures, will grow less and less 
every year, and more and more limited in pro- 
portion as the scope of the capitalistic circu- 
lation process is extended and the quicker that 
railroads and banks are developed in the Or- 
ient. 

So that the increased gold production, and 
along with it the auxiliary methods of increas- 
ing gold production, are ceasing to display 
those economic results which produce an in- 
crease in prices. But this is by no means all. 
It proceeds further and now becomes for the 
first time unpleasantly obvious. For now the 
other mentioned price-raising factors become 
not weaker but stronger. 



THE HIGH COST OF LIVING 109 



Some of the figures are given here so that 
the present rise in prices may be recognized. 
They are taken from the table of price statis- 
tics of the American Labor Bureau in Wash- 
ington. As a basis of the movement in prices, 
the yearly average of 1890 to 1899 is taken and 
set at 100. We first give the movement of the 
two great classes of raw materials and manu- 
factured products, then some subdivisions, 
which are particularly informing as regards 
price movement. 

See tables on this and the following page : 



Year 


Raw 
material 


Manu- 
factures 


Agric. 
Products 


1897 


87.6 
94.0 
105.9 
111.9 
111.4 
122.4 
122.7 
119.7 
121.1 
126.5 
133.4 
125.5 
136.8 
139.7 
139.9 


90.1 
93.3 
100.7 
110.2 
107.8 
110.6 
111.5 
111.3 
114.6 
122.6 
128.6 
122.2 
123.9 
129.6 
126.6 


85 2 


1898 


96.1 


1899 


100.0 


1900 


109.5 


1901 


116 9 


1902 


130 5 


1903 


118 8 


1904 


126 2 


1905 


124.2 


1906 


123 6 


1907 


137 1 


1908 


133 1 


1909 


153.1 


1910 


164 6 


1911 


162 







Generally we can say that the prices of man- 
ufactured articles have fallen less than those 
of agricultural products, the harvest of which 
is so dependent on the weather. Next, it ap- 
pears that the tendency to a rise in prices is 
much stronger in agricultural products than in 



^ 



110 THE HIGH COST o:f LIVING 



Year 



1897 
1898 
1899 
1900 
1901 
1902 
1903 
1904 
1905 
1906 
1907 
1908 
1909 
1910 
1911 



Cotton 


Cloth 


Metal and 
furniture 


92.2 


91.1 


86.8 


76.9 


93.4 


86.4 


84.7 


96.7 


114.7 


123.8 


106.8 


120.5 


111.1 


101.0 


111.9 


115.1 


102.0 


117.2 


144.7 


106.6 


117.6 


155.9 


109.8 


109.6 


123.1 


112.0 


122.5 


142.0 


120.0 


135.2 


153.0 


126.7 


143.4 


134.8 


116.9 


125.4 


156.0 


119.6 


124.8 


194.8 


123.7 


128.5 


168.0 


119.6 


199.4 



Pine 
lumber 

93.7 
96.8 
107.9 
120.5 
119.4 
137.2 
141.9 
141.5 
150.7 
171.6 
187.0 
189.0 
194.4 
196.1 
201.9 



industrial, and the tendency of prices in these 
to rise goes on in later years, the years of dim- 
inution of gold production, even to to-day. 
Manufactured articles as a whole reach their 
highest point in 1907 with the figure 129.6. 
They go to 1910 with the figure 129.6 and in 
1911 go below it to 126.9. Then clothes show 
the figures 1907, 126.7, 1911 119.6. Metals 
and furniture fdr 1907, 143.4, and 1911 119.4. 
On the other hand we find in agricultural prod- 
ucts, 1907, 137.1, 1911 162.0. For cotton, 
1908, 153.0, 1911 168.0, and afterwards, in 
1912, it climbed to the incredible height of 
194.8. Lumber climbs upward uninterrupt- 
edly. Even the crisis, especially in the years 
1907 to 1908, which made a setback in prices, 
had no effect on the price of lumber. 

Here appears perfectly evident the result of 
the capitalistic destruction of forests. In ag- 



THE HIGH COST OF LIVING 111 

riculture, too, we see the price-raising influence 
of private property. 

The general character of price development 
since 1907 is this: steady rise in prices of the 
necessities of life for the worker, of the agri- 
cultural raw material of industry, slow addi- 
tion to the demand for industrial products, 
stagnation in the wages of the industrial work- 
ing class. This is true chiefly for America. 
In Europe there are no complete statistics of 
prices, but the picture is the same, as can be 
learnt in the statistics of prices. 

And this development will proceed as long 
as the robber system of economy prevails, nay 
more, with the addition to the population and 
the extension of capitalism, private property 
extends its realm and its burdens become more 
onerous. The combination of industrial cap- 
italists could paralyze the downward tenden- 
cies of these factors profitably, but would press 
with double weight upon the entrepreneurs not 
in the combinations and the working class. 

And the attempt to off^set the rise in the 
price of agricultural raw materials, such as 
cotton and of the means of life, by means of a 
colonial expansion policy, is no less detrimental 
to the working class. For the results on agri- 
culture are remote and uncertain, and private 
property, in land as well as the robber system 
of economics will continually drive prices 
higher. Besides, the colonial policy involves 



112 THE HIGH COST OF LIVING 

unavoidably rapid increase in naval armament, 
and therefore taxes, which means a new burden 
on the working class, a strengthening of the 
tendency to a rise in prices. 

The latter now completely changes its char- 
acter. As long as the influence of increased 
production brought with it increased demand 
it was welcomed as an accompanying phenome- 
non of growing prosperity. Since the flow of 
increased gold production has receded and the 
other factors of increase in prices are still ex- 
istent, and altogether have not had the efl*ect 
of increasing demand but of diminishing sup- 
ply, this increase takes on a more disturbing 
character. From a phenomenon accompany- 
ing prosperity it becomes a cause of growing 
misery, and no longer of mere social relative 
misery, increased exploitation, but of absolute, 
physical misery. 

To the constant rise in the prices of the 
means of life a constantly growing lack of em- 
ployment is the companion in proportion as 
the new tendencies gain force together with the 
most frantic license, and greatest intensifica- 
tion of those tendencies of the modern method 
of production, which the Erfurter Program 
recognizes in the words of " Capital " as 
" growing addition to the insecurity of exist- 
ence, misery, oppression, slavery, degradation, 
exploitation," but with it also, as " Capital " 
further said: "The revolt of the steadily 



THE HIGH COST OF LIVING 113 

rising and united and organized working class 
trained by the mechanism of the capitaKstic 
method of production itself." 

The class war of the proletariat continually 
broadens, in times of rising or sinking prices, 
in times of growing prosperity as well as in 
those of growing need, since it proceeds from 
class antagonisms produced by capitalistic so- 
ciety under all circumstances. But the forms 
of the class war are one thing during times of 
industrial movement and another during eco- 
nomic stagnation. 

The former permit the organization of the 
proletariat to strengthen its feeling of power 
and its power, but blunt the spur of class an- 
tagonism and weaken revolutionary compul- 
sion to the overthrow of the whole capitalistic 
system and the power of the state which pro- 
tects it. 

The period of stagnation or Increasing mis- 
ery sharpens the spur of class antagonism and 
strengthens the revolutionary compulsion of 
the proletariat in proportion as the conditions 
are more unbearable. 

Such times tend steadily to profound dis- 
turbances of the existing state and organiza- 
tion of society. From these the proletariat 
may derive great advantage ; it may, by means 
of them, be able the earlier to deprive existing 
classes of new positions of power in the state, 
the more the preceding periods of prosperity 



114 THE HIGH COST OF LIVING 

made it capable of increasing its means of 
power and its class consciousness. 

A look back over the last two decades im- 
presses us that the party and the unions have 
done their duty. So we may confidently enter 
upon the conflict which the new era of capital- 
ism has for us, in which no rapid addition to 
gold production can longer interfere with the 
sharpening of class antagonisms, in which cap- 
ital extends its domain only at the expense of 
the growing misery of the mass of the popula- 
tion, and the latter is more and more com- 
pelled to cause the overthrow of the capitalist 
system on pain of its own destruction. 



THE GREAT SOCIALIST CLASSICS. 

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2 SOCIALIST BOOKS 

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Anarchism and Socialism, by George 
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GUSTAVUS MYERS' HISTORY OF THE 
GREAT AMERICAN FORTUNES. 

During the past two years Charles H. Kerr 
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Mr. Myers shows that the great American 
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American Capitalism. It is a big gun to be 



^ SOCIALIST BOOKS 

placed upon the firing line of the Movement. 
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.. Volume I treats of economic conditions in 
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of the origin of the great land fortunes, 
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Volume II begins the story of Great For- 
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The Life, Writings and Speeches of Eugene 
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We have two other works which do not per- 
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Ancient Society, by Lewis H. Morgan. Of 

this American classic in sociology we have 
sold five thousand copies. This work was 
known and recognized and the author honored 
by none other than Frederick Engels. A 
thorough understanding of the evolution of 



SOCIALIST BOOKS 5 

primitive man is required as a sound basis for 
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should read Morgan's Ancient Society before 
he takes up Marx's Capital. Cloth, $1.50. 

The Art of Lecturing, by Arthur M. Lewis« 

The growth of the Socialist Movement is call- 
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The Ancient Lowly, by C. Osborne Ward. 

A history of the Ancient Working People 
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movement. Cloth, two volumes, $2.00 each. 



6 SOCIALIST BOOKS 

Barbarous Mexico, by John Kenneth Turner. 
This remarkable work was said by some capi- 
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Capitalist and Laborer, by John Spargo. 

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Class Struggles in America, by A. M. Simons. 
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SOCIALIST BOOKS 7 

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The Common Sense of Socialism, by John 
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The Communist Manifesto in English and 
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God and My Neighbor, by Robert Blatch- 
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10 



SOCIALIST BOOKS 



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SOCIALIST BOOKS 11 

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SOCIALIST BOOKS 13 

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CHARLES H. KERR & COMPANY - - Publishers 

118 West Kinzie Street, Chicago. 



DEC 8 1913 



ANCIENT SOCIETY 

OR 

Researches in the Lines of Human 

Progress : From Savagery 

Through Barbarism to 

Civilization 

One American and only one is recog- 
nized by the universities of Europe as 
one of the world's great scientists. That 
American is Lewis H. Morgan, the author 
of this book. He was the pioneer writer 
on the subject. His conclusions have been 
fully sustained by later investigators. 

This work contains a full and clear explanation 
of many vitally important facts, without which no 
intellig-ent discussion of the "Woman Question" 
is possible. It shows that the successive marriagre 
customs that have arisen have corresponded to 
certain definite industrial conditions. The author 
shows that it is industrial changes that alter the 
relations of the sexes, and that these changes are 
still going on. He shows the historical reason for 
the * 'double standard of morals" for men and 
women, over which reformers have wailed in vain. 
And he points the way to a cleaner, freer, happier 
life for women in the future, through the triumph 
of the working class. All this is shown indirectly 
through historical facts ; the reader is left to draw 
his own conclusions. 

Cloth, 586 large pages, gold stamping. Until 
lately this book could not be bought for less than 
$4.00. Our price is $1.50, and we will mail the 
book to YOU for 50c, provided you send $1.00 at 
the same time for a year's subscription to the 
International Socialist Review. Address 

Charles H. Kerr 8l Company 

118 West Kinzie Street, Chicago 



